CERTIFIED FORENSIC FRAUD EXAMINER (CFFE)
MODULE ONE
INTRODUCTION TO FORENSIC ACCOUNTING AND AUDIT
MONDAY: 1 December 2025. Morning Paper. Time Allowed: 3 hours.
This paper has two Sections. SECTION I consists of fifty (50) Multiple Choice Questions carrying fifty (50) marks. SECTION II has four (4) structured questions carrying fifty (50) marks. Answer ALL questions. Marks allocated to each question are indicated at the end of the question.
SECTION I (50 MARKS)
1. Which one of the following statements is NOT a function of a forensic fraud investigation?
A. Conclusion in regard to whether fraud has occurred or not
B. Testifying in court as an expert witness
C. Making recommendation for corrective measures
D. Fraud risk assessment (1 mark)
2. Which one of the following accounting equations is CORRECT?
A. Assets = Owner’s equity – Liabilities
B. Liabilities = Owner’s equity + Assets
C. Owners’ equity = Assets – Liabilities
D. Assets = Liabilities + Owner’s equity (1 mark)
3. A fraud examiner discovered a fraud concealment of Sh.50,000 misappropriation in the books of Watatu enterprises. Which one of the following entries BEST explains a possible concealment of the Sh.50,000 misappropriated?
A. Dr: Cash and Cr; payroll liabilities
B. Dr: Cash and Cr: trade receivables
C. Cr: Cash and Dr: depreciation expense
D. Cr: cash and Cr: depreciation (1 mark)
4. Which one of the following shows the TWO primary methods of accounting?
A. Accurate and accredited accounting basis
B. Accrual and cash accounting basis
C. IFRS and accurate accounting basis
D. Accredited and fair value accounting basis (1 mark)
5. Short term liabilities include items such as .
A. bank overdraft and payables
B. trade receivables and short-term investments
C. five-year financing covenant
D. payables and pending civil suit liability (1 mark)
6. Which one of the following statements is an item of the statement of changes in equity?
A. Retained earnings and ordinary shares
B. Investment property and current assets
C. Current assets and current liabilities
D. Investment property and trade receivables (1 mark)
7. Which one of the following statements is ACCURATE in regard to the effects of overstating inventory?
A. The current ratio will be understated
B. The expenses will be understated
C. The cost of goods will be understated
D. The cost of goods will be overstated (1 mark)
8. Which one of the following statements is ACCURATE in regard to profitability and liquidity?
A. Net profit is equal to the cash balances
B. Operating cash flows balances are equal bank balances
C. Net profit is not equal to the cash and bank balances
D. Operating cash balances is equal to the gross profit (1 mark)
9. Which one of the following statements is NOT accurate in regard to reporting of the statement of profit or loss?
A. It includes a statement of comprehensive income
B. It shows the net worth of an organisation
C. Revenue is normally at the top most of the statement
D. Gross profit is derived from net sales less cost of sales (1 mark)
10. Which one of the following statements is ACCURATE in regard to capital expenditure?
A. Capital expenditure has future economic value
B. Capital expenditure is material expenditure
C. Capital expenditure is an item of the statement of profit and loss
D. Capital expenditure is consumable expenditure (1 mark)
11. Which one of the following statements BEST indicates fictitious revenue?
A. Unknown customers that have bought products with no contact details
B. Credit customers with bad payment history
C. Fake customers that transacted with the organisation
D. Sales that were paid for but services not delivered (1 mark)
12. Which one of the following statements BEST describes a method of concealing liabilities and expenses?
A. Omission of expenses
B. Disclosing warranty costs and product return liabilities
C. Capitalising liabilities
D. Accruing expenses (1 mark)
13. Which one of the following actions is NOT a financial statement related to improper valuations?
A. Disclosure of all subsequent events
B. Disclosure of related party transactions
C. Disclosure of all contingent liabilities
D. Writing off bad debts (1 mark)
14. Ordinary shares are items of which of the following financial statements?
A. Statement of profit or loss
B. Statement of cash flows
C. Statement of changes in owner’s equity
D. Statement of financial position (1 mark)
15. Which one of the following is NOT a profit of financial statement analysis?
A. Vertical analysis
B. Statistical analysis
C. Ratio analysis
D. Horizontal analysis (1 mark)
16. Which one of the following financial statements elements is NOT recorded in the statement of financial position?
A. Current assets
B. Non-current assets
C. Bad debts
D. Prepaid revenue (1 mark)
17. Which one of the following is an item for calculating gross profit?
A. Revenue
B. Cost of revenue
C. Net revenue
D. Net receivables (1 mark)
18. Which one of the following assignments is similar to fraud investigation?
A. External audit
B. Forensic accounting
C. Special audit
D. Forensic audit (1 mark)
19. Which one of the following statements BEST describes expenses?
A. When assets decrease or liabilities increase
B. When assets increase and liabilities increase
C. When capital expenditure is incurred
D. When assets increase and liabilities excluded (1 mark)
20. Which one of the following financial statements fraud schemes is NOT associated with overstated revenue fraud scheme?
A. Bad debts
B. Fictitious revenue
C. Long term contract revenue
D. Overstated revenue (1 mark)
21. Which one of the following statements BEST describes cash basis of accounting?
A. Revenue and expenses are recognised when cash is received and paid respectively
B. Prepaid expenses are excluded from the income statement
C. Expenses and revenue follow the matching concept
D. Revenue generated from credit sales is included in the income statement (1 mark)
22. Which one of the following is NOT used to calculate quick ratio?
A. Short term investments
B. Inventory
C. Trade receivables
D. Cash in Bank (1 mark)
23. Which one of the following is included in the statement of financial performance?
A. Gross salaries
B. Plant and equipment
C. Capital and reserves
D. Bank overdraft (1 mark)
24. Which one of the following statements is NOT part of cash flows from operating activities in the statement of cash flows?
A. Profit before tax
B. Changes in trade receivables
C. Depreciation
D. Loans advances (1 mark)
25. Which one of the following statements is ACCURATE in regard to statement of profit or loss?
A. Items of profit or loss are taken forward as opening balances in the next financial reporting year
B. Profit before tax is taken to statement of changes in equity
C. Taxes on sales are included in the statement of profit or loss
D. Gross profit is before expenses and taxes (1 mark)
26. Which one of the following statements is an objective of a forensic accounting for litigation purposes?
A. Prove or disapprove the allegation of accounting fraud
B. Determine the guilt or innocence in regards to the alleged fraud
C. To prove the allegations of fraud
D. To disapprove the allegations of fraud (1 mark)
27. Which one of the following statements is ACURATE in regard to financial statements elements?
A. Trade receivables are non-current assets
B. Loan advances to staff are part of total equity
C. Share capital are non-current liabilities
D. Bank overdraft are current liabilities (1 mark)
28. Which one of the following statements is NOT a purpose of a statement of financial position?
A. Demonstrating the performance of an entity over the reporting period
B. Assist in gearing ratio calculation
C. Showing the net worth of an organisation as at the end of the reporting period
D. Showing the total assets of an entity (1 mark)
29. Which one of the following items is used to calculate net profit?
A. Sales
B. Cost of goods sold
C. Trade discounts
D. Gross profit (1 mark)
30. Which one of the following actions will NOT lead to reduction in current tax payable?
A. Increasing expenses
B. Decreasing sales
C. Understating payroll expenses
D. Inclusion of capital items as expenses (1 mark)
31. Which one of the following BEST describes the financial item that will be misrepresented concealing expenses?
A. Net profit
B. Gross profit
C. Receivables
D. Owner’s equity (1 mark)
32. Which one of following statements is NOT a function of a forensic accountant?
A. Documenting the forensic accounting findings
B. Collect evidence to prove or disapprove a fraud allegation
C. Conduct an in-depth analysis of the general ledger
D. Expressing a forensic audit opinion (1 mark)
33. Which one of the following statements of cash flow activities is loan repayments recorded?
A. Investing activities
B. Operating activities
C. Financing activities
D. Strategic activities (1 mark)
34. Which one of the following items BEST describes unpaid salary deductions after month end?
A. Net profit before tax
B. Current liabilities
C. Unearned salary asset account
D. None current liabilities (1 mark)
35. Which one of the following is NOT an example of forensic accounting?
A. Examination of receivables
B. Revaluation of non-current assets
C. Examination of the general ledger
D. Examination of the payroll (1 mark)
36. Which one of the following statements BEST describes the role of a forensic auditor?
A. Prepare financial statements under IFRSs
B. Assist in preparation of management accounts
C. Provide an opinion of forensic audit results for litigation purposes
D. Collect evidence to approve or disapprove allegations of fraud (1 mark)
37. Which one of the following BEST describes a component of non-current assets?
A. Loans from financial institutions
B. Investment property
C. Trade receivables
D. None of the above (1 mark)
38. Which one of following BEST describes an engagement that could be conducted for purpose of bankruptcy?
A. Forensic accounting
B. Forensic audit
C. External audit
D. Internal audit (1 mark)
39. Which one of the following is NOT a financial element of a statement of profit or loss?
A. Depreciation
B. Net Sales
C. Expenses
D. Capital expenditure (1 mark)
40. Which one of the following financial statement fraud schemes does NOT result in overstatement of revenue?
A. Fictitious revenue
B. Unearned revenue
C. Long term revenue
D. Failure to write bad debts (1 mark)
41. Which one of the following BEST describes presentation of liabilities in the financial statement?
A. Order of maturity
B. Order of value
C. Order of liquidity
D. Order of value (1 mark)
42. Which one of the following expenses can management omit in the financial statements to fraudulently overstate the net profit?
A. Payables
B. Paid expense
C. Prepaid expenses
D. Capitalised expenses (1 mark)
43. Which one of the following is used to calculate the acid test ratio?
A. Revenue
B. Inventory
C. Securities
D. Machinery (1 mark)
44. Which one of the following statements is NOT a function of fraud investigations?
A. Assisting in fraud prevention and detection
B. Litigation support
C. Collection of evidence
D. Expressing an opinion (1 mark)
45. Which one of the following statements is MOST accurate in regard to the effects of improper recognition of revenue?
A. Fair representation of the financial position and performance of the entity
B. Overstatement of both the revenue and receivables
C. Reliable opinion in relation to the going concern
D. Misrepresentation of the financial performance of the entity (1 mark)
46. Which one of the following entries in the books of account would complete the double entry for purposes of concealing an asset misappropriation?
A. Reducing an expense
B. Increasing an expense
C. Increasing a liability
D. Reducing an asset (1 mark)
47. Which one of the following statements is NOT accurate in regard to recognising advance payments for goods to be delivered in the following year?
A. The transaction will understate the revenue earned during that financial year
B. The transaction will overstate the revenue earned during that financial year
C. The transaction is an example of a financial statement fraud scheme related to improper recognition of revenue
D. The transaction will overstate the net profit (1 mark)
48. Which one of the following accounts would NOT be fraudulently affected fictitious revenue?
A. The receivables
B. The current ratio
C. Net profit
D. Payables (1 mark)
49. Which one of the following assignments should a company conduct to establish if fraud has occurred upon receiving an anonymous tip?
A. Forensic Accounting
B. Forensic audit
C. Fraud audit
D. Surprise audit (1 mark)
50. Which one of the following statements BEST describes the effect on the statement of financial performance for failure to record the cost of revenue in the same reporting period?
A. Expenses will be understated
B. The gross profit will be overstated
C. The net profit will be understated
D. None of the above (1 mark)
SECTION II (50 MARKS)
51. Explain the following accounting concepts in relation to financial reporting:
(a) Gross profit. (5 marks)
(b) Net profit. (5 marks)
(c) Liquidity ratio. (5 marks)
(d) Net revenue. (5 marks)
(Total: 20 marks)
52. Explain FIVE essential skills of a fraud examiner. (Total: 15 marks)
53. Explain the following elements of fraud investigation:
(a) Objective. (2 marks)
(b) Conclusion. (2 marks)
(c) Scope. (2 marks)
(d) Presumption. (2 marks)
(e) Basis of the fraud investigation. (2 marks)
(Total: 10 marks)
54. In relation to fraudulent transactions, identify:
(a) THREE fraudulent transactions that would overstate receivables. (3 marks)
(b) TWO fraudulent transaction that would understate expenses. (2 marks)
(Total: 5 marks)
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