A contractor visits Lindsay's home and informs her that she has a damaged roof. The contractor offers roofing services and quotes Lindsay a price. Which of the following is the BEST action Lindsay can take to prevent being victimized by a potential consumer fraud scheme?
Answer : B
The best answer is B. A consumer approached by a contractor should independently verify the contractor's license or registration with the proper licensing agency before agreeing to work. Home repair and contractor scams often involve unsolicited offers, false claims of urgent repairs, inflated prices, poor workmanship, or unlicensed contractors. Oral agreements are risky because they provide little evidence of the work, price, warranties, or rights of cancellation. Reference can be useful, but a phone number supplied by the contractor might be fake or controlled by an accomplice. Asking about experience is also insufficient because the contractor can misrepresent it. Independent verification with the licensing authority is stronger because it confirms whether the contractor meets professional and regulatory requirements.
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Question 2
Which of the following search is used for unusually high incidence of returns and allowances scheme?
Answer : C
Rationale for Correct Answer:
Fraudulent schemes involving returns and allowances can be detected by analyzing accounts for unusually high transactions in these categories. This is a common red flag for concealment of theft or manipulation of sales.
Analysis of Incorrect Options:
A . Allowances by vendors -- Too narrow, not a standard analytic test.
B . Disposals of allowances than reorders -- Not a recognized search method.
D . None of the above -- Incorrect, since option C is valid.
Key Concept:
Returns and allowances analysis for fraud detection.
Which of the following factors is NOT included in most financial statement schemes?
Answer : B
Rationale for Correct Answer:
Common financial statement fraud schemes include: (A) recording fictitious revenues, (C) concealing liabilities/expenses, and (D) improper asset valuations. Persuasive evidence is not a fraud scheme; it is an auditing concept used to support accounting entries.
Analysis of Incorrect Options:
A, C, D -- All are well-documented methods of financial statement fraud.
B . Persuasive Evidence -- Correct, since it is not part of fraud schemes.
Key Concept:
Major categories of financial statement fraud schemes.
When situational pressures and perceived opportunities are low and personal integrity is high, occupational fraud is much more likely to occur than when the opposite is true.
Answer : B
Rationale for Correct Answer:
The statement is false. Cressey's fraud triangle and Albrecht's fraud scale both emphasize that fraud is more likely when pressures are high, opportunities are present, and integrity is low. Conversely, when pressure and opportunity are low and integrity is high, the likelihood of fraud is greatly reduced.
Analysis of Incorrect Options:
A . True -- Incorrect, it directly contradicts the fraud triangle and fraud scale models.
B . False -- Correct, because under the conditions stated, fraud occurrence is less likely.
ACFE Fraud Examiners Manual (2020 International Edition), Fraud Theory --- The Fraud Triangle and Fraud Scale.
Question 5
Which of the following is a recommended activity that organizations should engage in to protect their proprietary information from threats?
Answer : B
Rationale for Correct Answer: Data minimization---the practice of limiting the
Analysis of Incorrect Options:
A -- Monitoring competitors' practices does not secure one's own information.
C -- Quiet rooms are not a standard security safeguard.
D -- Restricting nonemployees is helpful, but overly broad and impractical as a primary recommendation.
Key Concept: Information security strategies to safeguard proprietary data.
Question 6
________ increase assets and expenses and/or decrease liabilities and/or equity.
Answer : B
Rationale for Correct Answer:
In double-entry accounting, a debit increases assets and expenses while decreasing liabilities and equity. Debits are entries on the left side of an account.
Analysis of Incorrect Options:
A . Journal Entries -- General record of transactions, not the specific effect.
C . Credit -- Opposite effect: increases liabilities/equity, decreases assets/expenses.
D . None of all -- Incorrect because ''debit'' is the recognized effect.
Key Concept:
Debit rules in double-entry accounting.
ACFE Fraud Examiners Manual (2020 International Edition), Accounting Concepts --- Debits and Credits.
Question 7
The excess credits (or debits) on the income statement are used to decrease (or increase) the equity account.
Answer : A
Rationale for Correct Answer:
This is True. The net result of revenues and expenses (credits and debits) on the income statement flows into retained earnings, which is part of equity on the balance sheet. Therefore, excess credits (profits) increase equity, while excess debits (losses) decrease equity.
Analysis of Incorrect Options:
B . False -- Incorrect, as the closing process of the accounting cycle directly affects equity.
Key Concept:
Closing process and impact of net income on equity.
ACFE Fraud Examiners Manual (2020 International Edition), Accounting Concepts --- Income Statement Flow to Equity.
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