Free CFE-Financial-Transactions-and-Fraud-Schemes Questions Attempt

Rationale for Correct Answer:Fraud investigations can be highly costly to organizations. The process often involves external forensic examiners, legal proceedings, employee time, and disruption of operations. While necessary, investigations represent a significant resource commitment in terms of both time and financial cost.

Key Concept:Fraud Investigation Costs — deterrence vs. response strategies.

Detailed Explanation:

Rationale for Correct Answer:Net realizable value (NRV) is the estimated selling price of an asset in the ordinary course of business, minus any costs of completion, disposal, or transportation. This is often applied in valuing accounts receivable and inventory.

Analysis of Incorrect Options:

B. Going concern – Assumption of business continuity, not asset valuation.

C. Cost – Historical cost, not future realizable value.

D. Fair value – Current market-based measure, not net proceeds after costs.

Key Concept:Net realizable value — valuation method for receivables and inventory.

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.

Detailed Explanation:

Rationale for Correct Answer:Donald Cressey’s fraud triangle identifies three conditions that lead to occupational fraud: (1) Pressure (financial or other), (2) Opportunity (ability to commit without detection), and (3) Rationalization (justification by the perpetrator to make the act acceptable in their own mind). Thus, the third leg is Rationalization.

Analysis of Incorrect Options:

A. Violation – Not part of the fraud triangle.

B. Isolation – Not a recognized component of the model.

D. None of the above – Incorrect because rationalization is explicitly the correct answer.

Key Concept:Fraud Triangle — Opportunity, Pressure, Rationalization.