BT - CH. 22,23 & 24

Professional firms such as accountants or lawyers sometimes handle client money.

Which of the following statements is true of client money?

• 1. Client money is money paid by the client for the firm’s professional services

• 1. Client money may need to be spent by the company on behalf of the client

• 1. Client money may be kept in the same bank account as the firm’s own money

• 1. Client money received in a foreign currency should be converted to the local currency of the firm holding that money before it is placed in the client bank account

Teeming and lading is a common method of fraud.

Which of the following statements best describes what is meant by teeming and lading?

• 1. Cash received from one customer is stolen and the loss is hidden by using cash from other customers to replace it

• 1. Colluding with another to carry out fraudulent activities

• 1. Serious organised crime

• 1. A manipulation of employee salary payments where a small amount is diverted from every salary payment to a fraudulent bank account

Organisations should establish procedures to help prevent money laundering and detect it should it occur.

Which of the following procedures would be LEAST helpful in the prevention and detection of money laundering?

• 1. Staff training

• 1. Customer due diligence

• 1. Approval of all transactions by senior management

• 1. Retention of records of transactions

Window dressing is _____ carried out at the _____ of a year on financial statements to make them appear _____ than they really are.

Which words, in order, correctly complete this sentence?

• 1. error, end, healthier

• 1. fraud, end, healthier

• 1. fraud, beginning, healthier

Three conditions must exist for fraud to occur.

Which of the following relate to those conditions?

1. 1. History of prior, less serious offenses

2. 2. Motivation to carry out the crime

3. 3. Dishonest actions

• 1. 1 and 2 only

• 1. 2 and 3 only

• 1. 1 and 3 only

• 1. 1, 2 and 3

An office employee gets unauthorised access to the corporate safe and makes copies of disks that contains important intellectual property of the company.

Which type of misappropriation of assets has occurred?

• 1. Swindling

• 1. Embezzlement

• 1. Conversion

• 1. Larceny

The CFO of Solar Energy Co is concerned about a possible debt downgrade by the rating agencies given the company’s poor interim performance and inability to meet its forecasts. In order to increase revenue and net income in its year-end financial statements, the CFO recognises revenue that has yet to be earned on several large contracts.

Which type of fraud risk factor most likely led to this financial reporting scenario?

• 1. Opportunities

• 1. Attitude

• 1. Incentive

• 1. Rationalisation

The chief financial officer of an investment firm is concerned about declining operating results for the recently completed fiscal year. She decides that investment income that is earned in the first fifteen days of the current fiscal year will be recognised in the prior year.

Which type of fraudulent activity (if any) most likely occurred?

• 1. Investment scheme

• 1. Window dressing

• 1. Misappropriation of assets

• 1. No fraudulent activity occurred

What is the best way for directors to discourage fraud?

• 1. Maintain a strong internal control system

• 1. Sack all employees suspected of carrying out fraud

• 1. Ensure employee pay is “above average”

• 1. Maintain an internal audit department

A fraud was recently discovered where the monthly salary of an employee who had left many months earlier continued to be paid after he had left. A wages administrator responsible for updating the payroll database was his girlfriend.

Which of the following controls, if operated, would have been most likely to have prevented the fraud?

• 1. Exit interview of employees by the HR department

• 1. Authorisation by the HR department of all changes to be made to the payroll database

• 1. Independent review and approval of the payment of the payroll against timesheets

• 1. Banning all personal relationships between payroll staff and other employees