ACFE Updated CFE-Financial-Transactions-and-Fraud-Schemes Exam Questions and Answers by tony

Detailed Explanation:

Rationale for Correct Answer:Deliberate writing of vague specifications is a type of corruption scheme where an employee intentionally drafts unclear requirements. This forces later amendments, which can be manipulated to favor a particular vendor.

Analysis of Incorrect Options:

B. Need recognition – Involves unnecessary purchases, not vague specifications.

C. False specification – General but not precise; “vague specifications” is the correct technical term.

D. Bid-splitting – Breaking contracts into smaller amounts to avoid approval controls, not related to vague specs.

Key Concept:Specification schemes in procurement corruption.

Detailed Explanation:

Rationale for Correct Answer:Revenue recognition requires that delivery has occurred or services have been rendered. If installation, testing, and customer acceptance have not occurred (A), or if a written order exists but with a right of return (B), delivery is not considered complete. Both scenarios prevent proper revenue recognition. Hence, the correct answer is C. Both A & B.

Analysis of Incorrect Options:

A – Correct condition, but incomplete.

B – Correct condition, but incomplete.

D. Neither A nor B – Incorrect, as both conditions do prevent recognition.

Key Concept:Revenue recognition fraud risks — recognizing revenue prematurely.

Detailed Explanation:

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.

Detailed Explanation:

Rationale for Correct Answer:The matching principle under GAAP requires that revenues and the corresponding expenses incurred to generate those revenues be recorded in the same period. Failing to do so misstates income and violates accrual accounting.

Analysis of Incorrect Options:

B. Revenue and Income statement – The income statement is a report, not an item to be matched.

C. Income statement and Long-term contracts – Long-term contracts follow special rules (percentage of completion, completed contract), not the general matching principle.

D. Capitalized expenses and Liabilities – Not part of the matching principle.

Key Concept:Matching Principle — recording related revenues and expenses in the same period.