CFE- Fraud-Schemes-and-Financial-Crimes Reviews Questions

Detailed Explanation:

Rationale for Correct Answer: Cressey’s research on fraud offenders found that most had non-sharable financial problems, which fell into categories such as: (1) violation of ascribed obligations, (2) business reversals, (3) physical isolation, (4) status gaining, and (5) employer-employee relations. “Larceny by fraud” is not a category of non-sharable problem but rather a type of theft scheme. Hence, D is correct.

Analysis of Incorrect Options:

A. Violation of ascribed obligations – Correctly one type of non-sharable problem.

B. Business reversals – Correctly one type of non-sharable problem.

C. Physical isolation – Correctly one type of non-sharable problem.

D. Larceny by fraud – Not a “problem” type; it is a fraud scheme.

Key Concept: Cressey’s non-sharable problems — psychological and situational pressures that contribute to occupational fraud.

The correct answer is B. A conflict of interest occurs when an employee has an undisclosed personal, financial, or family interest that could influence decisions made on behalf of the employer. Cindy purchases supplies from a company owned by her aunt and does not disclose the relationship. This creates at least a potential conflict because Cindy’s family connection could cause her to favor the vendor over her employer’s best interests. Options A and D involve relationships or financial interests, but they have been disclosed to the employer, allowing the organization to evaluate and approve or manage the conflict. Option C might create employment or scheduling concerns, but it does not establish a conflict in a purchasing or transactional decision. Disclosure is central to proper conflict management.

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The correct answer is A. Financial statement disclosures are required when information is necessary for users to understand the entity’s financial position and risks. Potential losses from ongoing litigation generally must be disclosed when the likelihood of loss is reasonably possible, even if the amount is not yet certain. Option B is incorrect because significant subsequent events after the reporting period might require disclosure. Option C is incorrect because changes in accounting principles must generally be disclosed to preserve comparability and transparency. Option D is too narrow because related-party transactions require disclosure when material or relevant, not only when they financially harm stakeholders. The ACFE financial statement fraud materials identify improper disclosures, concealed liabilities, subsequent events, and related-party transactions as important fraud risk areas.

Detailed Explanation:

Rationale for Correct Answer: Gross profit = Net sales – Cost of Goods Sold (COGS). This is the correct definition, as per standard accounting principles.

Analysis of Incorrect Options:

A. Gross revenue – Defined as total sales before deductions, not after.

B. Net profit – Net profit is after all expenses (operating, interest, taxes), not before.

D. Operating expenses – Appear after gross profit, not at the top.

Key Concept: Income statement structure and key definitions .