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

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:Fraudulent bid solicitation practices include issuing requests for proposals or bid documents that contain false statements or misleading conditions to favor a particular vendor.

Analysis of Incorrect Options:

B. Employment discussions – A conflict of interest, not bid solicitation fraud.

C. Withdraw low bids – A submission phase scheme.

D. Falsify bid log – A separate manipulation method, not solicitation criterion.

Key Concept:Fraudulent bid solicitation — using false or misleading statements to limit competition.

Detailed Explanation:

Rationale for Correct Answer:The full disclosure principle requires that all material facts and deviations from GAAP be disclosed to readers of financial statements so that they are not misled. Transparency is essential for informed decision-making by investors, creditors, and regulators.

Analysis of Incorrect Options:

B. SAS – Refers to auditing standards, not accounting standards.

C. Writer – Incorrect; disclosures are intended for readers/users.

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

Key Concept:Full disclosure principle — providing users with all material information.

Detailed Explanation:

Rationale for Correct Answer:Skimming involves the theft of cash before it is recorded in the accounting system. Since sales are never recorded, reconciling sales to receipts will not detect skimming—it can only detect larceny (theft after recording).

Analysis of Incorrect Options:

A. True – Incorrect because no discrepancy exists in the records (the sale itself is omitted).

Key Concept: Distinction between skimming (off-book theft) and cash larceny (on-book theft).