Pass the ACFE Certified Fraud Examiner CFE-Fraud-Schemes-and-Financial-Crimes Questions and answers with Dumpstech

Detailed Explanation:

Rationale for Correct Answer: The accounting cycle is the complete process of recording transactions, adjusting the books, preparing trial balances, and producing financial statements. Journal entries are part of the process, but the entire structured sequence is called the accounting cycle.

Analysis of Incorrect Options:

A. Journal Entries – Steps within the cycle, not the entire process.

C. Financial statement – Output of the cycle, not the process itself.

D. None of all – Incorrect since the accounting cycle is the correct term.

Key Concept: Accounting Cycle — structured process of recording and adjusting transactions.

Detailed Explanation:

Rationale for Correct Answer: Tangible assets are those that can be physically perceived (touched, seen, etc.) and appraised (assigned a measurable value). Examples include buildings, land, equipment, and inventory. Both characteristics are correct, making C the best choice.

Analysis of Incorrect Options:

A. Capable of being perceived – True, but incomplete.

B. Capable of being appraised – True, but incomplete.

D. Neither A nor B – Incorrect since both statements are accurate.

Key Concept: Tangible Assets — physical and measurable property owned by a business.

Detailed Explanation:

Rationale for Correct Answer: The SEC’s Staff Accounting Bulletin (SAB) 104 outlines four criteria for revenue recognition:

Persuasive evidence of an arrangement exists.

Delivery has occurred or services have been rendered.

The seller’s price is fixed or determinable.

Collectability is reasonably assured.

“ Timings have been met ” is not one of the recognized criteria, making C the correct answer.

Analysis of Incorrect Options:

A, B, D – All are required conditions.

C – Not part of SAB 104.

Key Concept: Revenue recognition criteria under SAB 104.

Detailed Explanation:

Rationale for Correct Answer: Skimming is defined as the theft of cash before it is recorded in the books . Because the stolen funds are never entered into the accounting system, this is often referred to as an “off-book” fraud. It is distinct from cash larceny , which occurs after cash has been recorded.

Analysis of Incorrect Options:

B. The addition of cash – Incorrect; skimming involves removal, not addition.

C. Removal after entry – This describes cash larceny, not skimming.

D. None of above – Incorrect since option A is correct.

Key Concept: Skimming schemes — off-book cash theft.

Detailed Explanation:

Rationale for Correct Answer: Perpetual inventory systems maintain a continuous, running balance of inventory on hand. They are updated with each purchase and sale, providing a theoretical count at all times. Discrepancies between perpetual and physical counts may indicate theft, errors, or fraud.

Analysis of Incorrect Options:

A. Altered inventory – Fraudulent manipulation, not a system.

C. Shrinking inventory – Refers to shrinkage, not the system.

D. Fictitious inventory – Fraudulent reporting, not a legitimate system.

Key Concept: Perpetual inventory systems as internal controls.

Detailed Explanation:

Rationale for Correct Answer: Bribery is specifically defined as offering, giving, receiving, or soliciting anything of value to influence an official act or business decision. It is one of the four primary corruption categories.

Analysis of Incorrect Options:

A. Corruption – Broader category; bribery is one part of it.

B. Diverting business to vendors – A conflict of interest scheme, not bribery.

D. Lacking approval authority – Refers to control weaknesses, not corruption.

Key Concept: Bribery definition and its role in corruption.

The ACFE Fraud Examiners Manual includes a specific subsection titled “Departures from Generally Accepted Accounting Principles” within Accounting Concepts .

Under the Manual’s discussion of GAAP, the focus is on proper financial reporting so that transactions are recorded in their appropriate classifications and reported fairly in the financial statements. The Manual explains that GAAP are the standardized financial reporting practices used to ensure accurate and reliable reporting.

Based on this framework, a departure from GAAP can be justified only in limited circumstances, such as when strict compliance would make the financial statements misleading or when a different treatment is necessary to better reflect the substance of the transaction rather than only its form. Likewise, avoiding the overstatement of assets or income is consistent with fair presentation and conservative reporting principles. These are accounting-based justifications tied to faithful financial reporting.

By contrast, cost is not a valid reason to depart from GAAP. The fact that reporting a transaction in a GAAP-compliant manner would be more expensive does not justify noncompliance. Financial statements must be prepared in accordance with the applicable standards, not according to whichever treatment is cheaper or easier for management. Therefore, this option is the one that is NOT justifiable.

Why the other options are not the correct choice

A. To avoid overstating assets and/or income

This is consistent with fair presentation. The Manual’s discussion of GAAP is aimed at proper classification and reporting of transactions so that financial statements are not distorted.

C. To better reflect the substance of a transaction

This is a recognized accounting rationale. Financial reporting should reflect the economic reality of a transaction, not merely its legal form. This is consistent with the Manual’s discussion of proper reporting under GAAP.

D. Following GAAP would produce misleading results on financial statements

This is one of the classic reasons a departure can be justified, because the objective of financial reporting is fair presentation rather than mechanical compliance that misleads users.

References

ACFE Fraud Examiners Manual, 2020 International Edition

Accounting Concepts — Generally Accepted Accounting Principles

Accounting Concepts — Departures from Generally Accepted Accounting Principles (1.122)

Detailed Explanation:

Rationale for Correct Answer: Simply holding two jobs without disclosure is not inherently a conflict of interest unless the roles compete, overlap, or present divided loyalties. The other options all describe undisclosed financial or relational interests that conflict with the employer’s best interest.

Analysis of Incorrect Options:

A. Harriet’s stock ownership – Direct financial conflict.

C. Jennifer’s board positions – Competing loyalties between competitors.

D. Ernest hiring his brother – Nepotism without disclosure is a conflict.

Key Concept: Conflict of interest schemes in corruption.

Detailed Explanation:

Rationale for Correct Answer: This statement is True . ACFE research shows that external audits, while valuable, are generally not effective at detecting fraud quickly . Organizations with only external audits often experience higher median losses and longer-lasting schemes compared to those with stronger internal controls and fraud-specific detection mechanisms. External audits are not designed to catch fraud; their focus is on financial statement accuracy.

Key Concept: Effectiveness of External Audits in fraud detection versus prevention and internal controls.

The ACFE Manual includes a section titled New Account Fraud Schemes under Financial Institution Fraud . The table of contents for this section specifically lists:

False Identification

Business Accounts Using Stolen Checks

Personal Accounts Using Fraudulent Checks

Mobile Deposit Fraud

Automated Teller Machine Deposits

Prevention

The best answer is Option C because mobile deposits present elevated risk in new account fraud environments precisely because they can occur without in-person verification. The Manual’s inclusion of mobile deposit fraud as a specific new account fraud scheme supports the conclusion that remote, non-face-to-face deposit channels are vulnerable.

Why the other options are incorrect

A. Fraud is more likely to occur in established accounts than in accounts that are newly opened.

This is not supported by the Manual’s treatment of new account fraud as a distinct fraud risk category. The very existence of a separate section on new account fraud indicates that newly opened accounts pose a meaningful risk.

B. Automated teller machines (ATMs) are rarely targets of new account fraud because most ATMs have cameras installed.

This is inaccurate. The Manual expressly lists Automated Teller Machine Deposits within New Account Fraud Schemes , showing that ATMs are in fact a recognized target of this type of fraud.

D. New account fraud can be defined as any fraud that occurs on an account within the first year that it is open.

This is too broad and not the Manual’s definition. The Manual classifies new account fraud by the nature of the scheme , such as false identification, fraudulent checks, mobile deposit fraud, and ATM deposit fraud, not by an arbitrary one-year timeframe.

References

ACFE Fraud Examiners Manual, 2020 International Edition

Financial Institution Fraud — New Account Fraud Schemes