CERTIFIED FORENSIC FRAUD EXAMINER (CFFE) MODULE ONE
INTRODUCTION TO FORENSIC ACCOUNTING AND AUDIT
PILOT PAPER
MARCH 2025. Time Allowed: 3 hours.
Answer ALL questions. 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. Marks allocated to each question are indicated at the end of the question.
1. Which of the following is NOT a required expertise for a forensic accountant?
A. Writing a forensic report
B. Testifying in court as an expert witness
C. Basic principles of evidence
D. None of the above (1 mark)
ANSWER: D
2. Forensic auditors do not necessarily have to be accountants. However, they must be knowledgeable in all the following areas EXCEPT?
A. Identification of red flags and risks of fraud
B. Detection of fraud and corruption schemes
C. Advanced knowledge in financial reporting standards in both the private and public sector
D. Interviewing skills (1 mark)
ANSWER: C
3. Which one of the following statements is ACCURATE in regard to departure from the respective IFRS in recognising revenue, costs and expenses, proper asset valuation and inadequate?
A. Fair representation of the financial position and performance of the entity
B. Misrepresentation of both the financial performance and position of the entity
C. Reliable opinion in relation to the going concern
D. Misrepresentation of the financial performance of the entity (1 mark)
ANSWER: B
4. Which of the following term is NOT a financial element of the company’s statement of profit or loss and other comprehensive income?
A. Revenue earned
B. Expenses incurred
C. Liabilities
D. Cost of revenue (1 mark)
ANSWER: C
5. Which one of the following statements is NOT accurate in regard to the statement of financial position?
A. Current assets are generally presented in order of liquidity on the statement of financial position
B. Non- current assets are recorded first in the statement of financial position
C. The statement of owner’s equity is recorded in the statement of financial position
D. None of the above (1 mark)
ANSWER: B
6. Which one of the following is NOT accurate in regard to payables, receivables, liabilities, inventory, cash and bank?
A. The above items are recorded in the balance sheet and are used to calculate the current ratio to measure an organisation’s profit
B. A current ratio that is too favourable is a red flag of overstated receivables, inventories or understated current liabilities or both
C. A current ratio can fraudulently be affected overstated and understated receivables and payables respectively
D. None of the above (1 mark)
ANSWER: A
7. Asset misappropriation of cash can be concealed fraudulently balancing the equation. Which one of the following actions would balance the accounting equation?
A. Reducing an expense
B. Increasing an expense
C. Increasing a liability
D. Reducing an asset (1 mark)
ANSWER: B
8. If a fraudster wanted to conceal misappropriation of cash, which one of the following actions would help to conceal an asset misappropriation?
A. Reducing revenue
B. Reducing an expense
C. Reducing an asset
D. None of the above (1 mark)
ANSWER: A
9. Making a debit entry in any account would help to conceal an asset misappropriation, after making a credit entry then in misappropriated account. Which one of the following entries in the following accounts can help to conceal an asset misappropriation?
A. Increasing a liability
B. Reducing an expense
C. Increasing revenue
D. None of the above (1 mark)
ANSWER: D
10. Julie runs a medium construction company. She got a contract to be performed over a period of five years. Janet signed a contract for the full contract amount with the client. By the end of Year 2 the company had performed and delivered only one fifth of the contract. Janet recorded the whole contract revenue amount in December of Year 2. Which one of the following is NOT true about the recording of that financial transaction?
A. The transaction understated the revenue earned during that financial year
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 revenue timing differences
D. All of the above (1 mark)
ANSWER: A
11. Which of the following formulae is ACCURATE in regard to the accounting model?
A. Assets = Liabilities – Owners’ Equity
B. Liabilities = Assets + Owners’ Equity
C. The accounting model is presented in the statement of performance
D. None of the above (1 mark)
ANSWER: D
12. Which of the following CANNOT be used to balance the accounting equation to conceal cash misappropriation?
A. Reducing revenue
B. Increasing a liability
C. Increasing an expense
D. None of the above (1 mark)
ANSWER: B
13. Which of the following statements is MOST ACCURATE in regard to statement of profit loss and other comprehensive income and statements of cash flow?
A. The statement of cash flows is often read together with the statement of profit or loss and other comprehensive income to determine a company’s true financial position.
B. The statement of cash flows is often read together with the statement of profit or loss and other comprehensive income to determine a company’s liquidity
C. The statement of cash flows is often read together with the statement of profit or loss and other comprehensive income to determine a company’s performance
D. The statement of cash flows is often read together with the statement of profit or loss and other comprehensive income to determine a company’s real profit (1 mark)
ANSWER: C
14. Which of the following financial items appears on the statement of financial position of an organisation?
A. Owner ‘Equity
B. Expenses
C. Gross profit
D. None of the above (1 mark)
ANSWER: A
15. Joel a Certified Forensic Fraud Examiner, was hired to serve as an accounting expert witness in a trial of alleged financial statement fraud. Joel found that some of the overdue receivable accounts with substantial amounts were created from fictitious. Which of the following financial reporting would NOT be fraudulently affected the above transaction?
A. The receivables
B. The current ratio
C. Net profit
D. None of the above (1 mark)
ANSWER: D
16. XYZ company received an anonymous tip alerting the company that there is rampant fraud and corruption going on in the company, especially in their procurement and finance department. After analysing the information there was sufficient suspicion of fraudulent activity. Which of the following assignment should the company conduct?
A. Forensic Accounting
B. Forensic audit
C. Fraud audit
D. Surprise audit (1 mark)
ANSWER: B
17. Which one of the following statements is ACCURATE regarding the statement of changes in owners’ equity?
A. It is not the same as 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 performance
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. None of the above (1 mark)
ANSWER: C
18. Cost of goods sold or other direct expenses for generating revenue should be recorded the same accounting period. Failure to do so would result in which of the following?
A. Overstated expenses
B. Overstated revenue
C. Understated net profit
D. None of the above (1 mark)
ANSWER: D
19. Which of the following statements is ACCURATE with regard to net profit?
A. Net profit is recorded in the statement of financial performance
B. Net profit is equal to gross profit less cost of goods
C. Gross margin is equal to revenue less cost of goods
D. None of the above (1 mark)
ANSWER: C
20. To conceal the removal of a liability from the books, which of the following actions would balance the accounting equation?
A. Reducing owners’ equity
B. Decreasing an expense
C. Increasing an asset
D. None the above (1 mark)
ANSWER: B
21. Which one of the following type of financial statement fraud scheme is management likely to engage in to impress the shareholders and investors?
A. Understatement of revenue
B. Overstatement of expenditure
C. Concealment of expenditure
D. Inadequate disclosures (1 mark)
ANSWER: C
22. Which one of the following is NOT a purpose of conducting a forensic accounting assignment?
A. Forensic accounting can be conducted to resolve allegations of fraudulent financial reporting
B. Forensic accounting can be conducted to establish the exact financial performance and position of an organization
C. Forensic accounting can be conducted for purposes of acquisition or mergers
D. Forensic accounting can be conducted to collect audit evidence and express an opinion (1 mark)
ANSWER: D
23. Which of the following statement is NOT accurate in regard to presentation of liabilities in the statement of financial position?
A. Liabilities are presented in the statement of financial position in order of liquidity
B. Liabilities are presented after assets in the statement of financial position
C. Liabilities are presented in order of maturity
D. Current liabilities are presented first followed long term liabilities (1 mark)
ANSWER: A
24. Which one of the following statements is ACCURATE in regard to adjusting journal entries posted in the ledger accounts?
A. Adjusting journal entries posted in the ledger accounts at the end of the financial year is a red flag of fraud
B. Adjusting journal entries posted in the ledger accounts at the end of the financial year are evidence of fraudulent financial transactions
C. Adjusting journal entries posted at the end of the financial year are all fraudulent
D. Adjusting journals do not require authorization like payments a senior accounting staff (1 mark)
ANSWER: A
25. Statement of cash flows, from operating activities can, be read together with the statement of profit and loss, to detect fraudulent financial reporting. Which of the following financial statement fraud scheme can be detected comparing the two financial statements?
A. Overstatement of revenue scheme
B. Understatement of revenue scheme
C. Overstatement of expenses scheme
D. Inadequate disclosures (1 mark)
ANSWER: A
26. Which one of the following are financial items of the statement of owner’s equity?
A. Owner’s equity and the retained earnings during the financial year
B. Owner’s equity and net profit realized during the financial year
C. Owner’s equity and the revenue earned during the financial year
D. Owner’s equity and the gross profit earned during the financial year
ANSWER: A
27. Departure from IFRS, in recognising revenue can result in misrepresentation of the financial statements. Which of the following statement is NOT accurate in regard to departure from IFRS?
A. Departure from IFRS, in recognising revenue would result in inflated net profit
B. Departure from IFRS, in recognising revenue would result in overstated receivables
C. Departure from IFRS, in recognising revenue would result in understated current ratio
D. Departure from IFRS, in recognising revenue would result in inflated current ratio (1 mark)
ANSWER: C
28. Which one of the following statements is ACCURATE in regard to investment activities of the statements of cash flow?
A. Investment activities of the statements of cash flow shows cash in from interest received
B. Investment activities of the statements of cash flow shows cash in from sale of assets
C. Investment activities of the statements of cash flow shows cash in from financing
D. Investment activities of the statements of cash flow shows cash in from revenue (1 mark)
ANSWER: B
29. Which one of the following statements is ACCURATE in regard to the matching principle?
A. The matching principle requires that revenue and expenses to be recorded during the same accounting period
B. According to the matching principle assets and liabilities should be recorded during the same accounting period
C. The matching principle requires that revenue and expenses should be matched with those of the previous accounting period
D. According to the matching principle assets and liabilities should be matched with those of the previous accounting period (1 mark)
ANSWER: A
30. Which one of the following statements is ACCURATE in relation to current ratio?
A. Overstatement of revenue would result to understated current ratio
B. Understated revenue would result to overstated current ratio
C. Overstatement of revenue would result to overstated current ratio
D. Understatement of revenue would not have any effect on the current ratio (1 mark)
ANSWER: C
31. Which one of the following is the first item on the income statement?
A. Net revenue
B. Net profit
C. Gross profit
D. Gross revenue (1 mark)
ANSWER: A
32. Which one of the following are the first items on the statement of financial position?
A. Current liabilities
B. Non- current assets
C. Current assets
D. Liabilities (1 mark)
ANSWER: C
33. Which one of the following BEST explains which type of information must be disclosed in the financial statements?
A. All information related to the reporting period
B. All material information related to the reporting period
C. All relevant information related to the reporting period
D. All audit evidence related to the reporting period (1 mark)
ANSWER: B
34. Receivables turnover ratio can help to detect which one of the following financial statement fraud schemes?
A. Overstated revenue scheme
B. Understated revenue schemes
C. Understated receivables
D. Fictitious revenue scheme (1 mark)
ANSWER: D
35. Progress on auditor’s recommendations, pending bills note and analysis and IFMIS generated reports, should be disclosed in which one of the following entities financial statements?
A. MDA’s
B. Public Companies
C. Private companies
D. Government ministries (1 mark)
ANSWER: A
36. Which one of the following is an objective of a forensic fraud audit?
A. To prove the allegations of fraud
B. To disapprove the allegations of fraud
C. To prove or disapprove the allegations of fraud
D. To express an opinion whether fraud has occurred or not (1 mark)
ANSWER: C
37. Which one of the following statements is NOT accurate in regard to auditors skills and knowledge of auditing for fraud in an audit engagement?
A. The auditor should have knowledge in fraud and corruption schemes
B. The auditor should be knowledgeable in fraud risk identification, assessment and mitigation
C. The auditor should have skills and knowledge in tests and procedures specifically designed to detect fraud
D. The auditor should have fraud investigative skills (1 mark)
ANSWER: D
38. Which one of the following assignment is NOT an investigation engagement?
A. Forensic fraud audit
B. Special audit
C. Fraud examination
D. Fraud investigation (1 mark)
ANSWER: B
39. Fraud examiners do not have to be accountants; but they must be knowledgeable in which one of the following areas?
A. Financial accounting
B. Management accounts
C. Financial statement fraud schemes
D. Auditing skills (1 mark)
ANSWER: C
40. Which one of the following transactions would result to misrepresentation of the statement of financial position?
A. Inadequate disclosures
B. Fictitious revenue
C. Related party’s transactions
D. Earned revenue (1 mark)
ANSWER: B
41. Which one of the following transactions would result to misrepresentation of the statement of financial performance?
A. Inadequate disclosures
B. Reporting entities
C. Related party’s transactions
D. Capitalisation of expenditure (1 mark)
ANSWER: D
42. Non-Current assets are presented on the statement of financial position in which of the following order?
A. Maturity
B. Amount value
C. Liquidity
D. Realizable value (1 mark)
ANSWER: C
43. Which one of the following transactions would balance an accounting equation?
A. Increasing owners’ equity
B. Increasing an expense
C. Increasing a liability
D. Reducing an expense (1 mark)
ANSWER: B
44. If a fraudster wanted to conceal the misappropriation of cash, which of the following entry would help to conceal an asset misappropriation.
A. Decreasing an asset
B. Decreasing an expense
C. Decreasing a liability
D. Decreasing an expenditure (1 mark)
ANSWER: C
45. Which one of the following statements is NOT accurate in regard to recording of revenue?
A. Revenue should be recorded when it is earned
B. Revenue should only be recorded when it is received
C. Revenue recorded should be net
D. Only revenue for services or goods delivered should be recorded (1 mark)
ANSWER: B
46. If a statement of cash flows recorded negative balances from the operating activities, such situation is indicative of which one of the following financial statement frauds?
A. Fictitious revenue scheme
B. Skimming of receivables
C. Overstated payables
D. Skimming of cash (1 mark)
ANSWER: A
47. Which one of the following is a type of financial statement fraud related to inadequate provision for expected credit loss?
A. Overstated receivables
B. Understated receivable
C. Inadequate disclosure
D. Overstated expenses (1 mark)
ANSWER: A
48. Which one of the following statements is NOT accurate in regard to financial items?
A. Inadequate disclosures are financial statements items
B. Unpaid expenses are financial statement items
C. Unearned revenue is not a financial item
D. Unearned revenue is not a disclosure item (1 mark)
ANSWER: A
49. Which of the following activity should management proactively conduct to detect fraudulent activities in a finance department?
A. Fraud audit
B. Fraud investigation
C. Value for money audit
D. Fraud Examination (1 mark)
ANSWER: A
50. Redbrick Limited management want to inflate the company’s financial performance. Which one of the following fraud schemes would help them to achieve their objective?
A. Inadequate disclosure
B. Overstating expenditure
C. Recognising long term contract revenue in year 1 of performance
D. Proportioning revenue based on completed work (1 mark)
ANSWER: C
SECTION II (50 MARKS)
51. Explain how the following financial statements would be affected a fictitious revenue transaction:
(a) Statement of financial position. (5 marks)
(b) Statement of financial performance. (5 marks)
(c) Current ratio. (5 marks)
(d) Net profit. (5 marks)
(Total: 20 marks)
52. In the context of forensic accounting, discuss FIVE types of non-fraud forensic accounting engagements.
(Total:15 marks)
53. (a) Differentiate between “forensic accounting” and “forensic audit”. (2 marks)
(b) Discuss FOUR types of forensic accounting assignments. (8 marks)
(Total:10 marks)
54. Highlight FIVE characteristics of a professional forensic auditor or a fraud examiner. (Total: 5 marks)
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