Forensic Accounting 1e Robert Rufus Laura Miller William Hahn
(Test Bank All Chapters, 100% Original Verified, A+ Grade)
Forensic Accounting (Rufus)
Chapter 1 Introduction to the World of Forensic Accounting
1.1 True/False Questions
1) Forensic accounting can be defined as the application of financial facts to legal situations.
Answer: TRUE
Explanation: Forensic accounting can be defined as the application of financial facts to legal
situations.
Diff: 1
LO: 1-1
AACSB: Analytical Thinking
2) "Trust, but verify" is the general rule while exercising professional skepticism.
Answer: TRUE
Explanation: Forensic accountants must exercise a healthy dose of professional skepticism. This
reflects a proactive, questioning mindset, where nothing is as it seems and "trust, but verify" is
the general rule.
Diff: 1
LO: 1-1
AACSB: Analytical Thinking
3) Fraud detection and fraud examination describes reactive strategies while fraud deterrence
describes proactive strategies.
Answer: TRUE
Explanation: Fraud deterrence differs from fraud detection and fraud examination in that it
describes proactive (rather than reactive) strategies.
Diff: 1
LO: 1-2
AACSB: Analytical Thinking
4) The need or motive of the fraud is not the immediate challenge of a fraud examination.
Answer: TRUE
Explanation: The primary focus of a fraud examination is to determine the following elements
of the fraud: who committed the fraud, how they committed it, when it was committed, how
much was taken, and who else was involved. The why (need or motive), although important to
the overall understanding of fraud, is not the immediate challenge.
Diff: 1
LO: 1-2
AACSB: Analytical Thinking
5) Fraud deterrence strategies include statistical analysis.
Answer: FALSE
Explanation: Statistical analysis is a fraud detection strategy.
Diff: 1
LO: 1-2
AACSB: Analytical Thinking
1
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,6) Fact witnesses can express opinions but expert witnesses cannot.
Answer: FALSE
Explanation: Expert witnesses differ from fact witnesses in that they can express opinions.
Diff: 1
LO: 1-2
AACSB: Analytical Thinking
7) The accounting process has three basic steps: recording, classifying, and summarizing.
Answer: TRUE
Explanation: The accounting process has three basic steps: recording, classifying, and
summarizing.
Diff: 1
LO: 1-3
AACSB: Analytical Thinking
8) The first line of defense against accounting failures within an organization is the external
auditor.
Answer: FALSE
Explanation: The first line of defense against accounting failures within an organization is the
internal auditor.
Diff: 1
LO: 1-3
AACSB: Analytical Thinking
9) Deductive reasoning draws conclusions from patterns.
Answer: FALSE
Explanation: Inductive reasoning draws conclusions from patterns.
Diff: 1
LO: 1-4
AACSB: Analytical Thinking
10) Expert reports prepared in the course of litigation are exempt from professional report
writing standards.
Answer: TRUE
Explanation: Expert reports prepared in the course of litigation are exempt from professional
report writing standards.
Diff: 1
LO: 1-4
AACSB: Analytical Thinking
2
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,1.2 Multiple-Choice Questions
1) Which of the following best describes the term forensic accounting?
A) It is a discipline that deals with the preparation and analysis of financial statements of
companies.
B) It is the use of accounting principles to consolidate financial statements of foreign
corporations.
C) It is a discipline that primarily deals with methods of preparation of financial budgets of a
company.
D) It is the use of accounting theories, principles, or analyses in a legal action, often through
expert witness testimony.
Answer: D
Explanation: D) Forensic accounting can be defined as the use of accounting theories,
principles, or analyses in a legal action, often through expert witness testimony. In other words,
it is the application of financial facts to legal situations.
Diff: 2
LO: 1-1
AACSB: Analytical Thinking
2) Which of the following is recognized as the first forensic accountant?
A) Frank J. Wilson
B) Maurice Peloubet
C) Alphonse Capone
D) Leslie A. Shuway
Answer: A
Explanation: A) The term forensic accountant was first used by Maurice Peloubet in 1946 in the
Journal of Accountancy to recognize and celebrate IRS Special Agent Frank J. Wilson as the
man who brought down Capone.
Diff: 1
LO: 1-1
AACSB: Analytical Thinking
3) Which of the following statement is true of forensic accountants?
A) They should have a reactive mindset.
B) They should focus their investigations on numbers rather than looking beyond them.
C) They should embrace systematic thinking.
D) They must trust their preexisting judgments.
Answer: C
Explanation: C) Forensic accountants need to be intellectually curious. In addition to this, they
must embrace systematic thinking and exercise a healthy dose of professional skepticism.
Diff: 1
LO: 1-1
AACSB: Analytical Thinking
3
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, 4) Which of the following shows Paul, a forensic accountant, indicating an intellectually curious
mindset?
A) He relies on the reports given by the management to form an opinion on the financial viability
of the business.
B) He bases his judgments on the existing industry standards and not on the environment in
which the organization operates.
C) He gives room for the possibility that mistakes maybe attributable to negligence.
D) He questions his understanding of an issue, in spite of being an expert in the field.
Answer: D
Explanation: D) An intellectually curious individual possesses a restless mind-one that is never
satisfied with his or her understanding of an issue, regardless of experience and expertise.
Moreover, forensic accountants must have the instinct to explore problems that challenge
conventional wisdom.
Diff: 2
LO: 1-1
AACSB: Reflective Thinking
5) Which of the following situations shows Kelcie, a forensic accountant, exercising professional
skepticism?
A) Kelcie argues that the immediate previous year's records serve as a better basis for the
investigation than the earlier years.
B) Kelcie believes that the reputation of the external auditor is an indicator of the reliability of
the audit report.
C) Kelcie believes in the phrase "guilty, until proved otherwise" and does not presume innocence
until she has reasonable doubt.
D) Kelcie verifies the reports given by the internal auditor against available evidence before
using it in her reports.
Answer: D
Explanation: D) Forensic accountants must exercise a healthy dose of professional skepticism.
This reflects a proactive, questioning mindset, where nothing is as it seems and "trust, but verify"
is the general rule. Kelcie follows this general rule, which indicates professional skepticism.
Diff: 2
LO: 1-1
AACSB: Reflective Thinking
4
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