CERTIFIED FORENSIC FRAUD EXAMINER (CFFE) MODULE ONE
INTRODUCTION TO FORENSIC ACCOUNTING AND AUDIT
MONDAY: 2 December 2024. Morning Paper. Time Allowed: 3 hours.
This paper consists of one hundred (100) Multiple Choice Questions. Answer ALL questions indicating the letter (A, B, C or D) that represents the correct Answer. Each question is allocated one (1) mark.
1. Which one of the following audits is suitable for court use?
A. Forensic audit
B. External audit
C. Internal audit
D. All types of audits (1 mark)
2. Which one of the following skills is a necessary skill for a forensic auditor?
A. Basic knowledge of rules of evidence
B. Good knowledge of finance and accounting
C. Advanced audit skills
D. Good knowledge of International Reporting Standards (1 mark)
3. Forensic auditors must be knowledgeable in all of the following, EXCEPT .
A. identification of fraudulent accounting transactions
B. detection of fraud and corruption schemes
C. conduct investigations in all areas without technical assistance
D. identification of red flags and fraud risks (1 mark)
4. Improper recognition of revenue, omission of expenses, improper asset valuation would result in which one of the following misrepresentations?
A. Misrepresentation of the financial position
B. Both misrepresentation of the financial performance and position
C. Misrepresentation of the financial position
D. Overstated current ratio (1 mark)
5. Which one of the following is NOT an element of statement of profit or loss and other comprehensive incomes?
A. Unearned revenue
B. Accrued expenses
C. Earned unpaid revenue
D. Cost of revenue (1 mark)
6. Which one of the following statements is NOT accurate in regard to the statement of financial position?
A. Current assets are generally presented after the non- current assets in the statement of financial position
B. Non- current assets are recorded in the statement of financial position
C. The statement of owner’s equity is recorded in the statement of financial position
D. Current assets are generally presented first in order of liquidity (1 mark)
7. Which one of the following statements is ACCURATE in regard to the current ratio?
A. The above items are recorded in the balance sheet and are used to calculate the quick ratio to measure an organisation’s liquidity
B. A current ratio that is too favorable is a red flag of overstated receivables, inventories or understated current liabilities or both
C. A current ratio can fraudulently be overstated understated receivables and overstated current liabilities respectively
D. None of the above (1 mark)
8. Which one of the following transactions will NOT balance the accounting equation?
A. Reducing an asset
B. Increasing an expense
C. Decreasing a liability
D. Reducing revenue (1 mark)
9. Which one of the following entry into the books of account would help to conceal an asset misappropriation?
A. Increasing revenue
B. Reducing an expense
C. Decreasing payables
D. Increasing payables (1 mark)
10. Patrick Wawire runs a medium road construction company. He was awarded a contract to be performed over a period of 3 years. By the end of year 2, the company had performed and delivered only one third of the contract. Patrick recorded the whole contract revenue amount in December of year 2.
Which one of the following statements is NOT accurate in regard to the recording of the financial transaction?
A. The revenue was recorded in accordance with the IFRS for recognising revenue.
B. The transaction overstated the revenue earned during that financial year
C. The transaction is an example of a financial statement fraud scheme related to improper revenue recognition
D. The revenue was not recorded in accordance with the IFRS for recognising revenue. (1 mark)
11. Blue Green company recorded substantial profits. The statement of cash flow recorded negative balances from the operating activities. Which one of the following is a scheme that was likely perpetrated?
A. Understated revenue
B. Fictitious revenue scheme
C. Overstated payables
D. Overstated non- current assets (1 mark)
12. Which of the following is NOT accurate in regard to accounting model?
A. Assets = Liabilities + Owners’ Equity
B. Liabilities = Assets + Owners’ Equity
C. The accounting model is presented in the statement of financial position
D. The accounting model is presented in the net worth of an organisation (1 mark)
13. Which one of the following transactions CANNOT complete the double entry?
A. Reducing revenue
B. Reducing a liability
C. Reducing an expense
D. Reducing income (1 mark)
14. The statement of cash flows is often read together with the statement of profit or loss to determine which one of the following?
A. A company’s true financial performance
B. A company’s liquidity
C. A company’s financial position
D. A company’s net worth (1 mark)
15. Which one of the following is an element of the statement of financial position?
A. Revenue
B. Expenses
C. Gross profit
D. Current liabilities (1 mark)
16. Which one of the following transactions would overstate assets in the statement of financial position?
A. Fictitious revenue
B. Overstated cost of goods
C. Accrual of expenses
D. Earned revenue (1 mark)
17. Which one of the following exercise should an organisation conduct in response to confirmed allegations of fraud?
A. An in-depth audit
B. Special audit
C. Forensic audit
D. Fraud audit (1 mark)
18. Which one of the following exercise should an organisation conduct first in response to a fraud anonymous tip?
A. A fraud audit
B. Special audit
C. An inquiry
D. Forensic audit (1 mark)
19. Which one of the following statements is NOT accurate in regard to the statement of changes in owners’ equity?
A. It is similar to the statement of retained earnings
B. It shows how amounts on the statement of profit or loss and other comprehensive income flow through to the statement of financial position
C. It acts as the connecting link between the statement of financial position and the statement of profit or loss and other comprehensive income
D. It shows the entity’s financial position and performance (1 mark)
20. Which one of the following transactions would inflate the gross profit?
A. Understated direct cost of sales
B. Earned revenue
C. Understated expenses
D. Accrued expenses (1 mark)
21. Which one of the following statements BEST describes why the proper basis for recording a piece of equipment is at the cost value?
A. The cost value is more objective
B. The cost value is subjective
C. The cost value is less than the market value
D. The cost value is more than the market value (1 mark)
22. Which of the following statements is NOT accurate in regard to net profit?
A. Net profit is recorded in the statement of profit and loss
B. Net profit is equal to gross profit less operating expenses
C. Net profit is equal to revenue less cost of revenue
D. Net profit is equal to gross profit less cost of revenue (1 mark)
23. The assumption that a business will continue in operations in the next financial year is referred to as .
A. consistency
B. profitability
C. liquidity
D. going concern (1 mark)
24. Which one of the following is NOT an activity in the statements of cash flow?
A. Operating activities
B. Investment activities
C. Cash activities
D. Financing activities (1 mark)
25. Which one of the following accounting principles requires expenses and revenue to be recorded in the same financial year?
A. Comparability principle
B. Consistency principle
C. Materiality principle
D. Matching principles (1 mark)
26. Which of the following statements is ACCURATE in regard to recognising revenue for work that is to performed and delivered in the following financial year?
A. Revenue will be understated
B. Receivables will be overstated
C. Current ratio will be understated
D. Receivables will be understated (1 mark)
27. Which of the following statements is ACCURATE in regard to IFRS and financial reporting?
A. IFRS enhance transparency, comparability and trust in the global financial sector
B. IFRS helps to increase the net worth of the financial position
C. IFRS financial reporting standards are mandatory for financial reporting in all jurisdictions
D. IFRS decrease the net worth of the financial position (1 mark)
28. Which one of the following statements is ACCURATE in regard to the statement of cash flows?
A. The statement of cash flows is often read together with the statement of profit or loss to determine a company’s true financial performance
B. The statement of cash flows reports a company’s assets and uses of cash during the accounting period
C. There are three types of cash flows activities; cash flows from operating activities, performance activities and financing activities
D. The statement of cash flows is often read together with the statement of profit or loss to determine a company’s true financial position (1 mark)
29. Which one of the following BEST explains failure to disclose important information that the user of the financial statements would like to know?
A. Limited disclosure
B. Inadequate disclosure
C. Financial statement fraud
D. Related party transactions (1 mark)
30. Which one of the following financial ratios can be used to detect fictitious revenues?
A. Current ratio
B. Non-current ratio
C. Receivables turnover ratio
D. Inventory turnover ratio (1 mark)
31. Which one of the following statements is NOT accurate in regard to a situation where the note and analysis on pending bills in the financial statement and the pending bills listing do not balance?
A. It is a red flag of overstated pending bills
B. It is a red flag of concealment of actuals versus budget
C. It is red flag of cash misappropriation
D. It is a red flag of overstated expenses (1 mark)
32. Which one of the following is NOT a major concern of government external auditors?
A. Acceptable financial and other information systems are in place, along with arrangements to provide annual assurance on the reliability of such systems
B. That the entity’s finance team are all qualified accountants
C. The entity has arrangements in place to produce reliable financial statements, along with adequate supporting working papers, to an acceptable timetable
D. The entity’s finance team has sufficient knowledge and understanding of IPSAS and their applicability to the entity’s financial Statements (1 mark)
33. Forensic accountants and auditors are expected to observe the following is code of ethics, EXCEPT .
A. confidentiality
B. integrity, independence and objectivity
C. responsibility to the profession
D. intelligence (1 mark)
34. Which one of the following statements is NOT accurate in regard to risk-based audit?
A. The auditor should prioritise the audit according to the level of the risk, that is, high to medium approach
B. The auditor should be knowledgeable in fraud risk identification, assessment and mitigation
C. To detect fraud in high-risk areas, the auditor uses tests and procedures specifically designed to detect fraud
D. The auditor should be knowledgeable in fraud risk identification, assessment and investigations of fraud risks (1 mark)
35. Which one of the following assignments is the same as fraud investigations?
A. Forensic fraud audit
B. Special audit
C. Fraud audit
D. Surprise audit (1 mark)
36. Forensic auditors must have knowledge in which one of the following areas?
A. Basic knowledge in laws related to fraud
B. Preparation of financial statement
C. Preparation of management accounting
D. Financial reporting (1 mark)
37. Departure from the respective IFRS for recognising revenue, improper deferral of costs and expenses, improper asset valuations and inadequate disclosure could result to the following, EXCEPT .
A. misrepresentation of the statement of financial position
B. faithful presentation of the financial performance and position
C. allegations of fraudulent financial reporting
D. misrepresentation of the statement of financial performance (1 mark)
38. Which one of the following statements BEST describes a company’s statement of financial performance?
A. The company’s financial position at the end of the financial year
B. The changes in the total owners’ equity amount listed on the statement of financial position
C. The company’s profit (or loss) during the financial year
D. The company’s sources and uses of cash during a particular period of time (1 mark)
39. Which one of the following statements is ACCURATE in regard to statement of financial position?
A. Non-current assets are generally presented on the statement of financial position in order of maturity
B. Statements of financial position is usually manipulated overstating assets and understating liabilities
C. Revenues and expenses accounts are recorded in statement of cash flow
D. Non- current assets are more vulnerable to manipulation than current assets (1 mark)
40. Which one of the following financial statements is capital expenditure recorded?
A. Statement of changes in owners’ equity
B. Statement of profit or loss
C. Statement of cash flows
D. Statement of financial position (1 mark)
41. Which one of the following entries would NOT result in a balanced accounting equation?
A. Reducing owners’ equity
B. Creating an expense
C. Decreasing a liability
D. Decreasing an expense (1 mark)
42. Which one of the following entries would decrease an asset?
A. Debit entry
B. Credit entry
C. Cash entry
D. Double entry (1 mark)
43. Which of the following statements is NOT accurate in regard to recording revenue in the books of account?
A. Recording receivable revenue
B. Recording revenue deposit
C. Recording cash revenue
D. Recording earned revenue (1 mark)
44. Green Apple Company recorded substantial profits while their cash balances were on the negative from the operating activities. Which one of the following is NOT a red flag of financial statement fraud?
A. Fictitious revenue scheme
B. Skimming of receivables
C. Overstated payables
D. Overstated expenses (1 mark)
45. Which one of the following transactions can a fraudster record in the books of account to conceal embezzlement of funds?
A. Increasing revenue
B. Increasing a liability
C. Reducing an expenditure
D. Increasing an asset (1 mark)
46. Which one of the following financial statements would help to measure the efficiency of cash management of an organisation?
A. Statement of cash flow
B. Statement of financial performance
C. Statement of financial position
D. Statement of retained earnings (1 mark)
47. Which one of the following items is NOT a current asset?
A. Receivables
B. Cash
C. Inventory
D. Payables (1 mark)
48. The requirement under the IFRS that all important information should be included in the financial statements is referred to as .
A. material information
B. adequate disclosures
C. financial statements items
D. indepth investigation (1 mark)
49. Which one of the following assignments would be performed a company that wants to acquire another entity to establish the real financial performance and position of the organisation?
A. An independent audit
B. Forensic accounting
C. Forensic audit
D. Fraud audit (1 mark)
50. Which one of the following statements is NOT accurate in regard to the statement of owners’ equity?
A. Changes in owners’ equity is similar to the statement of retained earnings
B. Changes in owners’ equity is capital plus retained earnings
C. Changes in owners’ equity is capital plus earnings
D. Changes in owners’ equity is an item of the statement of financial position (1 mark)
51. Which one of the following accounting principles require that revenue and cost of revenue be recorded during the same accounting period?
A. Corresponding principle
B. Double entry principle
C. Comparability principle
D. None of the above (1 mark)
52. Which one of the following statements describe the proper basis for recording a piece of equipment or vehicle in the books of account?
A. Historical cost or revaluation amount less accumulated depreciation
B. Sales value less accumulated depreciation
C. Current market value
D. Revaluation value (1 mark)
53. Which one of the following statements is ACCURATE in regard to gross margin?
A. Gross margin is the difference between cost of sales and operating costs
B. Gross margin is equal to net revenue less cost of goods sold
C. Gross margin is equal to revenue less cost of sales
D. Gross margin is equal to net sales less cost of and operating cost (1 mark)
54. Which one of the following financial statements is expenditure recorded?
A. Statement of changes in owners’ equity
B. Statement of profit or loss
C. Statement of cash flows
D. Statement of financial position (1 mark)
55. Which one of the following assignments is the same as fraud detection?
A. Forensic fraud audit
B. Fraud examination
C. Fraud audit
D. Fraud investigation (1 mark)
56. Which one of the following accounts are presented in order of maturity in the statement of financial position?
A. Liabilities
B. Non- current assets
C. Current assets
D. Expenditure (1 mark)
ANSWER A
57. Which one of the following financial account elements are presented in order of liquidity in the statement of financial position?
A. Liabilities
B. Non-current assets
C. Current assets
D. Expenditure (1 mark)
58. Flora Mumbi runs a flower delivery company. She uses the accrual basis of accounting on a yearly basis. In the year 2023, a customer placed an order of Sh.150,000 for a wedding that will take place in the year 2024.The customer then paid for the flowers in full when placing the order in the year 2023.Which one of the following statements is ACCURATE in regard to recording of the revenue and the expenses of the order
A. Flora should record revenue and expenses in the year 2024
B. Flora should record the revenue in the year 2023 and the expenses in the year 2024
C. Flora should record the revenue and expenses in the year 2023
D. Flora should record revenue in the year the revenue was received (1 mark)
59. In which one of the following assignments would require the services of a forensic auditor?
A. Bankruptcy and reorganisation
B. Economic damage calculation in lawsuits
C. Business valuation
D. Fraud investigations (1 mark)
60. Which one of the following concepts require that the financial statements be complete, neutral and free from fraud or error?
A. Relevance
B. Comparability
C. Faithful representation
D. Consistency (1 mark)
61. Which one of the following transactions would NOT balance the accounting equation?
A. Increasing owners’ equity
B. Increasing revenue
C. Increasing an expenditure
D. Increasing a different liability (1 mark)
62. Which of the following category of cash flows activities would increase cash balances but not from the organisation’s performance?
A. Operating activities
B. Financing activities
C. Revenue activities
D. Cash activities (1 mark)
63. Which one of the following statements is ACCURATE in regard to inadequate disclosures?
A. Disclosures amounts are financial statements elements
B. Disclosures amounts are not financial statements elements
C. Disclosures should not be part of financial reporting
D. Failure to include disclosures would not fraudulently affect the financial reporting (1 mark)
64. Which one of the following transactions would fraudulently affect the current ratio?
A. Accrual of expenses
B. Proper valuation of inventory
C. Omission of expenses
D. Writing off bad debts (1 mark)
65. Under IPSAS, MDAs financial statements should NOT include which one of the following disclosures?
A. Management accounts
B. Pending bills note and analysis
C. IFMIS generated reports
D. None of the above (1 mark)
66. Which one of the following statements is NOT accurate in regard to financial reporting of MDAs?
A. Kenya has adopted IFRS for financial reporting
B. Kenya has adopted IPSAS for financial reporting for MDAs
C. IPSAS financial reporting require that MDAs use the accrual basis of accounting
D. IPSAS financial reporting require that MDAs use the cash basis of accounting (1 mark)
67. Which one of the following is NOT one of those reporting areas under the IFRS?
A. Revenue recognition
B. Asset valuation
C. Disclosures
D. None of the above (1 mark)
68. Which one of the following is NOT one of those code of ethics for fraud examiners?
A. Competence
B. Objectivity
C. Continuous learning
D. Dependency (1 mark)
69. Which one of the following is NOT a fraudulent financial reporting scheme?
A. Recognising long term contract revenue in the first year of performance
B. Inadequate provision for bad and doubtful debts
C. Capitalising expenditure
D. Accruing expenses (1 mark)
70. Which one of the following is NOT a financial statement fraud scheme?
A. Adequate disclosures
B. Omission of expenses expenditure
C. Capitalisation of expenditure
D. Failure to write off bad debts (1 mark)
71. Which one of the following engagements should auditors perform when auditing for economy, efficiency and effectiveness in procurement?
A. Special audits
B. Fraud audit
C. Surprise audit
D. Value for money audits (1 mark)
72. Which one of the following assignments would NOT specifically require a forensic accountant?
A. Calculation in lawsuits
B. Business valuation
C. Business combination
D. Fraud investigations (1 mark)
73. Red Limited management and board of directors deliberately failed to write off substantial amount of bad debts. What type of financial statement fraud was management perpetrating?
A. Improper liabilities valuation
B. Improper current assets valuations
C. Improper non-current asset valuation
D. Improper assets net adjustment (1 mark)
74. Which one of the following statements is NOT accurate in regard to recording of fictitious revenue? Fictitious revenue will result to .
A. overstated receivables
B. inflated profits
C. overstated current ratio
D. understated current ratio (1 mark)
75. Which one of the following is NOT a root cause of financial statements fraud?
A. Absence of internal controls
B. Situational pressure
C. Inadequate oversight the board
D. Rationalisation (1 mark)
76. Revenue and the corresponding cost of revenue should be recorded in the same accounting period. This accounting principle is called .
A. consistency principle
B. comparability principle
C. materiality principle
D. matching principle (1 mark)
77. Which one of the following is an item of the statement of cash flows activities from operating activities?
A. Investment dividends
B. Share capital
C. Cash from a loan
D. Revenue cash (1 mark)
78. Which one of the following financial ratio can be used to measure an organisation’s ability to meet its immediate financial obligations?
A. Current ratio
B. Quick ratio
C. Receivable turnover ratio
D. Liquidity ratio (1 mark)
79. Which of the following is NOT accurate in regard to financial reporting in Kenya?
A. Kenya has adopted IFRS and IPSAS standards for financial reporting in the private and public sector respectively
B. Nairobi Securities Exchange require companies trading in the Securities exchange with public accountability to use IFRS
C. Public sector is also required to use IFRS in financial reporting
D. None of the above (1 mark)
80. Which one of the following statements is NOT accurate in regard to the statements of financial position for public companies?
A. Liabilities are generally presented on the statement of financial position in order of maturity
B. Statements of financial position is usually manipulated overstating assets and understating liabilities
C. The statement of financial position shows the net worth of a company at a given financial year
D. Statements of financial position is usually manipulated overstating expenses and understating revenue
(1 mark)
ANSWER D
81. Which one of the following fraud schemes is common in the preparation of financial statements?
A. Overstated income and understated expenses
B. Overstated liabilities and expenses
C. Understated working capital
D. Understated current assets (1 mark)
82. Which one of the following is ACCURATE in regard to recording of payables?
A. Failure to record payables would inflate the current ratio
B. Failure to record payables would understate the profit
C. Failure to accrual expenses would overstate the current liabilities
D. Failure to record payables would understate the current ratio (1 mark)
83. Which of the following statements is NOT accurate in regard to a forensic audit?
A. The forensic auditor should assume that a forensic audit will end up in court
B. The forensic audit should be conducted only on sufficient predication
C. The scope of a forensic audit should be wide enough to uncover all the fraudulent evidence
D. The scope of the forensic audit should be specific to the allegations (1 mark)
84. Which of the following is NOT a characteristics of a forensic auditor?
A. A friendly person
B. Patient
C. Too formal
D. Informal (1 mark)
85. Which of the following statements is NOT accurate in regard to forensic audit reporting as opposed to audit reports?
A. The conclusion of an audit report is an opinion
B. The conclusion of a forensic audit report is a summary of the findings
C. Conclusion and recommendations in a forensic report are the same and the terms can be used interchangeably
D. Conclusion and recommendations contents in a forensic report are not the same (1 mark)
86. Which of the following is NOT accurate in regard to the skills of a forensic auditor?
A. A forensic auditor should have good knowledge of rules of evidence
B. A forensic auditor should have good knowledge of laws related to fraud
C. A forensic auditor should have good interviewing skills
D. A forensic auditor should have good auditing skills (1 mark)
87. Which of the following is NOT accurate in regard to disclosures under the IFRS?
A. Disclosures in financial statements is one of the IFRS
B. IFRS’s leave room for interpretation
C. IFRS’s does not require lengthy disclosures on financial statement
D. IFRS’s requires lengthy disclosures on financial statement (1 mark)
88. Strict adherence to IFRS would result to .
A. fair recognition of revenue
B. an understated performance of an organisation
C. fair representation of the financial position of an organisation
D. unfair recognition of revenue (1 mark)
89. Which one of the following is NOT an element of statement of profit or loss?
A. Revenue
B. Bad debts
C. receivables
D. Expenditure (1 mark)
90. Which one of the following is an item shown in the statement of owners’ equity?
A. Current liabilities
B. Revenue
C. Retained profit
D. Expenses (1 mark)
91. Which one of the following is NOT an item of cash flows activities from financing activities?
A. Dividends from investments
B. Sale of public shares
C. Cash from sale of an asset
D. Cash from a loan (1 mark)
92. Which one of the following statements is ACCURATE in regard to forensic audit and fraud investigations assignments?
A. Forensic audit is not an investigation engagement
B. The objective of a forensic audit and an investigation is to collect evidence to prove an allegation
C. Forensic audit or investigation is a methodology of resolving fraud issues from inception to disposition
D. Forensic audit or investigation is a methodology of resolving fraud allegations from inception to disposition (1 mark)
93. Which one of the following is an item of statement of cash flows activities from investment activities?
A. Revenue
B. Funds from a loan
C. Cash from sale of an asset
D. Cash from interests (1 mark)
94. Which one of the following statements is NOT accurate in regard to payables?
Unpaid expenditures are .
A. financial statements items
B. not financial statements items
C. items of statement of profit or loss
D. items of statement of financial position (1 mark)
95. Which one of the following statements is ACCURATE in regard to transactions which can be controlled directors of a company that they doing business with?
A. Related party’s transactions are not disclosure items
B. All related party’s transactions are fraudulent
C. Related party’s transactions are not necessarily fraudulent
D. Related party’ transactions are not allowed under IFRS (1 mark)
96. Which one of the following financial statements fraud scheme involves recognising expenses as assets?
A. Capitalising expenses
B. Omission of expenses
C. Overstating of assets
D. Understating assets (1 mark)
97. Which one of the following financial statements fraud schemes involves omission of expenses?
A. Understatement of expenses
B. Overstatement of expenses
C. Overstating of assets
D. Capitalising of expenses (1 mark)
98. Which one of the following financial statements fraud schemes involves recognising revenue that has not been earned?
A. Overstatement of revenue
B. Fictitious revenue
C. Understatement of receivables
D. Understatement of revenue (1 mark)
99. Which one of the following financial statements fraud schemes involves failure to write off obsolete inventory?
A. Capitalising expenses
B. Improper asset valuation
C. Overstatement of assets
D. Overstatement of expenses (1 mark)
100. Which one of the following is NOT a disclosure item in the financial statements?
A. Related party’s transactions
B. Anticipated legal cost
C. Unanticipated legal costs
D. Warrants (1 mark)
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