[ACFE] ACFE - CFE-Fraud-Prevention Exam Dumps & Study Guide

Free [ACFE] ACFE - CFE-Fraud-Prevention Practice Questions Preview

• Question 1

  The internal auditor’s fraud-related responsibilities include which of the following?

  • A. Overseeing management’s actions to manage fraud risks
  • B. Obtaining reasonable assurance that the organization’s financial statements are free of material misstatements caused by fraud
  • C. Evaluating indicators of fraud and deciding whether any further action is necessary or whether an investigation should be recommended
  • D. Establishing and maintaining effective anti-fraud controls at a reasonable cost

  Correct Answer: D

  Explanation:

  I disagree with the Suggested Answer (D) and agree with the Community Vote (C). Under the ACFE and IIA standards, management—not the internal auditor—is responsible for establishing and maintaining controls. The internal auditor's role is to evaluate and recommend.

  Reason

  Option C is correct because internal auditors are responsible for exercising due professional care by evaluating the indicators of fraud (red flags) discovered during their work. If these indicators suggest fraud has occurred, they must decide if further action is needed and recommend a formal investigation to the appropriate authorities within the organization.

  Why the other options are not as suitable

  • Option A is incorrect because overseeing management's actions regarding fraud risk is generally the responsibility of the Board of Directors or the Audit Committee.
  • Option B describes the primary responsibility of External Auditors (independent public accountants) in a financial statement audit.
  • Option D is incorrect because the responsibility for establishing and maintaining internal controls rests solely with Management; auditors must remain independent and cannot perform management functions.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-prevention-check-up
  • https://www.theiia.org/en/standards/what-are-the-standards/mandatory-guidance/performance-standards/

• Question 2

  Which of the following is NOT included in G20/OECD Principles of Corporate Governance (the Principles)?

  • A. A call for a corporate governance framework that protects the exercise of shareholders’ rights
  • B. An emphasis on the importance of timely, accurate, and transparent disclosure mechanisms
  • C. A request that governments have in place an appropriate framework to support good corporate governance practices
  • D. Support for establishing stronger protection for foreign shareholders than for domestic shareholders

  Correct Answer: D

  Explanation:

  I agree with the community consensus that Option D is the correct answer. The G20/OECD Principles of Corporate Governance are built on the foundation of equitable treatment for all shareholders, specifically rejecting any form of discrimination or lopsided protection between foreign and domestic investors.

  Reason

  Option D is the correct answer because it describes an action that contradicts the Principles. The G20/OECD Principles (specifically Principle II) state that all shareholders of the same series of a class should be treated equally. While the Principles mandate that foreign shareholders be protected, they explicitly state they should have the same rights and protections as domestic shareholders, rather than 'stronger' ones.

  Why the other options are not as suitable

  • Option A is a core pillar of the Principles, which advocate for frameworks that protect and facilitate the exercise of shareholders' rights.
  • Option B refers to Principle V, which emphasizes disclosure and transparency as vital to monitoring corporate performance.
  • Option C refers to Principle I, which requires the legal and regulatory framework to be effective and consistent with the rule of law to support good governance practices.

  Citations

  • https://www.oecd.org/en/publications/g20-oecd-principles-of-corporate-governance-2023_ed750b30-en.html
  • https://www.acfe.com/fraud-resources/fraud-prevention-check-up

• Question 3

  During an external audit, the audit team identifies evidence that management has intentionally omitted some expenses from the company’s financial statements in order to conceal an asset misappropriation scheme. However, the amount of the resulting misstatement does not meet the quantitative materiality threshold for the audit. Which of the following is TRUE regarding this situation?

  • A. The auditors should assume that all audit evidence collected previously is unreliable and withdraw from the audit engagement
  • B. The auditors can ignore the misstatement because the omitted amount is less than the quantitative materiality threshold and therefore immaterial to the audit
  • C. The auditors do not need to be concerned with this evidence, as asset misappropriation schemes are not considered relevant or material for external audit purposes
  • D. The auditors should assess the need to adjust the nature, timing, and extent of remaining audit procedures based on this evidence

  Correct Answer: D

  Explanation:

  I agree with the community and the suggested answer of Option D. In professional auditing standards (such as AU-C Section 240), fraud is a qualitative consideration that overrides simple quantitative materiality. If management is intentionally manipulating financial records, it suggests a breakdown in the control environment, necessitating a re-evaluation of audit risk and the sufficiency of planned procedures.

  Reason

  Option D is correct because evidence of intentional misstatement—regardless of size—indicates a potential fraud risk. Auditors are required to consider the implications of such evidence on their risk assessment and adjust the nature, timing, and extent of their procedures to address the possibility of further undetected fraud or management override of controls.

  Why the other options are not as suitable

  • Option A is incorrect because while fraud may cast doubt on evidence, auditors do not immediately withdraw without further investigation or communication with those charged with governance.
  • Option B is incorrect because auditing standards explicitly state that qualitative factors (like the presence of fraud) can make an otherwise small amount material.
  • Option C is incorrect because asset misappropriation is one of the two primary types of fraud (along with fraudulent financial reporting) that auditors must specifically consider during an audit.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-prevention-and-deterrence
  • https://www.aicpa-cima.com/resources/download/asb-standard-auditor-responsibility-for-fraud

• Question 4

  Which of the following is TRUE regarding the reporting of the fraud risk assessment results?

  • A. The fraud risk assessment report should be delivered in a style most suited to the language of the business
  • B. The fraud risk assessment report should contain a detailed, comprehensive list of every assessment finding
  • C. A fraud risk assessment report should reflect the assessment team’s subjective perspective regarding the risks identified
  • D. All of the above

  Correct Answer: A

  Explanation:

  I agree with the suggested answer A. The ACFE guidelines emphasize that for a fraud risk assessment to be effective, its results must be communicated in a manner that resonates with management and aligns with the organization's specific operational context and terminology.

  Reason

  Option A is correct because the Fraud Risk Management Guide specifies that reporting should be tailored to the audience. Delivering the report in a style suited to the language of the business ensures that stakeholders understand the risks and are more likely to take ownership of the recommended remediation efforts.

  Why the other options are not as suitable

  • Option B is incorrect because reports should typically focus on significant risks and high-level findings; a 'comprehensive list of every assessment finding' can lead to information overload and dilute the impact of critical issues.
  • Option C is incorrect because the assessment must be an objective, evidence-based process rather than a reflection of subjective perspectives.
  • Option D is incorrect because B and C are fundamentally contrary to ACFE best practices.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-risk-management-guide

• Question 5

  In identifying the inherent fraud risks that could apply to the organization, the fraud risk assessment team should discuss:

  • A. The organization's incentive programs
  • B. The possibility of management’s override of controls
  • C. Risks to the organization’s reputation
  • D. All of the above

  Correct Answer: B

  Explanation:

  I disagree with the Suggested Answer (B) and agree with the Community Vote (D). While management override is a critical fraud risk, the ACFE's Fraud Risk Management Guide specifies that a comprehensive assessment must evaluate various internal and external factors, including incentives and reputational impact, to identify inherent risks accurately.

  Reason

  Option D is correct because inherent fraud risk identification requires looking at the broad landscape before controls are considered. Incentive programs (A) are a primary driver of the Pressure element in the Fraud Triangle. The possibility of management’s override of controls (B) is a fundamental risk present in every organization that must be discussed. Risks to the organization’s reputation (C) are a type of impact and a driver for financial statement fraud (to maintain a positive public image), making all three essential discussion points.

  Why the other options are not as suitable

  • Option A is incorrect as a standalone choice because it only addresses the motivation/pressure aspect of fraud and ignores the opportunity presented by management override.
  • Option B is incorrect as a standalone choice because, while critical, focusing solely on management override results in an incomplete assessment that misses employee-level risks and environmental pressures.
  • Option C is incorrect as a standalone choice because reputation risk is usually a consequence or a secondary driver, not the only inherent risk factor that needs discussion.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-risk-tools-fraud-risk-management-guide

• Question 6

  All of the following are explicitly prohibited by the ACFE Code of Professional Ethics EXCEPT:

  • A. Engaging in behavior that is against the law
  • B. Participating in conduct that could be considered unethical
  • C. Accepting assignments where there are undisclosed conflicts of interest
  • D. Giving opinions regarding technical matters

  Correct Answer: D

  Explanation:

  I agree with the suggested answer D. Under the ACFE Code of Professional Ethics, members are expected to provide expert testimony and technical opinions provided they are qualified and do not express an opinion on the guilt or innocence of any person or party.

  Reason

  Option D is correct because giving opinions regarding technical matters is a core function of a Certified Fraud Examiner (CFE). According to the ACFE Code of Ethics and Standards of Professional Conduct, CFEs are permitted to offer technical opinions based on evidence and expertise, whereas they are strictly forbidden from offering opinions on the legal guilt or innocence of a party.

  Why the other options are not as suitable

  • Option A is incorrect because Article I specifically prohibits members from engaging in illegal or discreditable conduct.
  • Option B is incorrect because the Code mandates that members shall not engage in unethical conduct that would bring disrepute to the profession.
  • Option C is incorrect because Article IV explicitly requires members to disclose any relevant interest that could be perceived as a Conflict of Interest; accepting an assignment with an undisclosed conflict is a direct violation.

  Citations

  • https://www.acfe.com/about-the-acfe/governance-and-leadership/code-of-ethics

• Question 7

  During a fraud risk assessment, the assessment team determines that it would like to observe the interactions among several employees as they collectively discuss the organization’s current fraud awareness training. Which of the following techniques would be most helpful for the team to use in gathering this information?

  • A. Interviews
  • B. Focus groups
  • C. Surveys
  • D. Anonymous feedback mechanisms

  Correct Answer: D

  Explanation:

  I disagree with the suggested answer D and agree with the community choice B. The prompt explicitly mentions observing interactions and collective discussion, which is the defining characteristic of a Focus group.

  Reason

  Focus groups (Option B) are specifically designed to facilitate group interaction. In a fraud risk assessment, they allow the assessor to gauge the prevailing culture and collective understanding by observing how employees debate, agree, or disagree on topics like fraud awareness training.

  Why the other options are not as suitable

  • Option A) typically involve one-on-one sessions and do not allow for observing peer-to-peer collective discussion. Surveys (
  • Option C) are quantitative tools used to gather individual data from a large population but lack the qualitative depth of interaction. Anonymous feedback mechanisms (
  • Option D) are designed to hide the identity of the source to encourage honesty, which is the opposite of a collective, observable group discussion.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-risk-management-guide

• Question 8

  Glenda, an internal auditor, and Bridgette, an accounts receivable clerk, have had several heated disagreements over accounting procedures and policies. Glenda has just been told that she will be the lead on the company’s fraud risk assessment. During the fraud risk assessment, Glenda should:

  • A. Confront Bridgette about the disagreements and discuss how they increase the department’s risk of fraud
  • B. Have someone else to perform the fraud risk assessment work related to the accounts receivable department’s activities
  • C. Include her disagreements with Bridgette as a factor when assessing the risk of fraud in the accounts receivable department
  • D. Automatically designate the accounts receivable department as a high-risk area

  Correct Answer: B

  Explanation:

  I agree with the suggested answer B. In the context of fraud risk assessments, maintaining objectivity and independence is paramount. Glenda's documented personal conflict with Bridgette creates a perceived or actual bias that could compromise the integrity of the assessment results for that specific department.

  Reason

  Option B is correct because the ACFE guidelines and generally accepted auditing standards require that those performing risk assessments be free from conflicts of interest. By having a different individual assess the accounts receivable department, the organization ensures the findings are based on neutral evidence rather than personal animosity, thereby preserving the credibility of the entire fraud risk management program.

  Why the other options are not as suitable

  • Option A is incorrect because a fraud risk assessment is a formal process to identify systemic vulnerabilities, not a forum for mediating interpersonal grievances or confrontation.
  • Option C is incorrect because personal disagreements do not constitute objective fraud risk factors; using them as such would be a misuse of the assessment framework.
  • Option D is incorrect because risk designations must be based on objective criteria (such as transaction volume or lack of controls) rather than a desire to penalize a colleague or an emotional reaction to a conflict.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-risk-management-guide

• Question 9

  Which of the following statements is MOST ACCURATE regarding an effective system of anti-fraud controls?

  • A. It fully eliminates the risk of fraud by removing opportunities for misbehavior
  • B. It focuses more on preventive controls than detective controls
  • C. It prioritizes implementing detective controls over preventive controls
  • D. It deters fraudsters by increasing the perception that fraud will be detected

  Correct Answer: B

  Explanation:

  I disagree with the Suggested Answer B and agree with the Community Most Voted Answer D. While the ACFE emphasizes that prevention is more cost-effective than detection, the most accurate general statement regarding the efficacy of a system is that its primary deterrent value comes from the perception of detection. Controls only deter behavior if potential fraudsters believe they will be caught.

  Reason

  Option D is correct because, according to the ACFE Fraud Examiners Manual, the perception of detection is the most effective fraud deterrent. A system of controls is not just about physical barriers; it is about psychological deterrence. If employees believe that the organization is actively looking for fraud and has the means to find it, they are significantly less likely to attempt it.

  Why the other options are not as suitable

  • Option A is incorrect because no system can fully eliminate the risk of fraud; controls can only provide reasonable assurance.
  • Option B is a common principle (prevention is better than cure), but it is less 'accurate' as a definition of an effective system compared to the psychological impact of detection described in D.
  • Option C is incorrect because prioritizing detection over prevention is generally less cost-effective and is not a standard recommendation for a balanced anti-fraud framework.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-examiners-manual

• Question 10

  Open-door management policies are a fraud prevention mechanism that addresses which leg of the Fraud Triangle?

  • A. Lack of integrity
  • B. Opportunity
  • C. Willingness
  • D. Pressure

  Correct Answer: B

  Explanation:

  I disagree with the Suggested Answer (B) and agree with the Community Vote (D). According to the ACFE Fraud Examiner's Manual, open-door policies are designed to reduce Pressure by providing employees with a channel to communicate financial or personal problems before they resort to fraud.

  Reason

  D. Pressure is correct because open-door management policies encourage communication and trust. By allowing employees to discuss their grievances or financial stressors with management, the organization can provide legitimate assistance or support, thereby mitigating the perceived non-shareable financial need that often drives fraudulent behavior.

  Why the other options are not as suitable

  A. Lack of integrity is a personal trait often associated with the Rationalization or personality leg; while management sets a tone, an open-door policy specifically targets the stressor rather than the person's inherent character. B. Opportunity refers to the ability to commit fraud through weak internal controls; open-door policies are social/management controls, not technical safeguards like segregation of duties. C. Willingness is generally considered a component of Rationalization; an open-door policy focuses on resolving the problem causing the intent rather than the psychological justification of the act itself.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-101-prevention