Question 1

Which of the following ratios can be used to assess a company's solvency?
A) Current ratio
B) Return on assets
C) Times-interest-earned ratio
D) Inventory turnover

Accepted Answer

The times-interest-earned ratio is used to assess a company's ability to meet its debt obligations, which is a measure of solvency.

Question 2

Benford's Law can help detect fraud by:
A) establishing weaknesses in the accounting control system.
B) identifying accounting anomalies.
C) focusing on unexplained changes.
D) identifying possible attempts by fraudsters to make stolen amounts look random.

Accepted Answer

Benford's Law is a statistical tool that predicts the expected frequency distribution of the first digit of numbers in certain data sets. It has been observed to apply to financial data, where the first digit of numbers in legitimate financial transactions should follow the expected frequencies. If fraudsters attempt to make stolen amounts look random by manipulating the first digits of their fraudulent transactions, it will not follow the expected frequencies of Benford's Law, which can indicate possible fraud activity. Therefore, the best choice is D, identifying possible attempts by fraudsters to make stolen amounts look random.

Question 3

One way to view the results of multiple indicators is to use a chart called a:
A) Soundex algorithm.
B) summarization chart.
C) Pareto chart.
D) Matosas matrix.

Accepted Answer

The answer of One way to view the results of...

Question 4

Which of the following statements is true about ODBC?
A) It allows use of the powerful SQL language for searching and filtering data.
B) It is generally slower and less robust than text files.
C) IT departments are very comfortable in giving out ODBC connections.
D) It is an application-level setting rather than a system-wide setting.

Accepted Answer

ODBC (Open Database Connectivity) allows the use of the powerful SQL language for searching and filtering data. It is not generally slower or less robust than text files, and IT departments may or may not be comfortable giving out ODBC connections depending on their policies. It is not necessarily an application-level setting and can be configured on a system-wide level.

Question 5

A mathematical algorithm that predicts the percentage of the time each digit will appear in a sequence of numbers is:
A) inductive fraud detection.
B) deductive fraud detection.
C) Benford's Law.
D) horizontal analysis.

Accepted Answer

The mathematical algorithm that predicts the percentage of the time each digit will appear in a sequence of numbers is known as Benford's Law. This law states that in many naturally occurring datasets, the frequency of leading digits follows a predictable pattern. It has practical applications in fraud detection, financial auditing, and data analysis.

Question 6

Identify the formula used to calculate z-score.
A) (Mean − Value)/Standard Deviation
B) (Mean − Value)/(Mean + Value)
C) (Value − Mean)/Standard Deviation
D) (Value − Mean)/Median

Accepted Answer

The formula for calculating z-score is (Value − Mean)/Standard Deviation. This involves subtracting the mean from the value in question and then dividing by the standard deviation. Option A is the reverse of the correct formula and Option B involves adding the mean to the value in question, which is not necessary for calculating z-score. Option D is incorrect because z-score is calculated using the standard deviation, not the median.

Question 7

Which of the following is least effective while searching for anomalies?
A) Comparing account balances in the statements from one period to the next.
B) Calculating key ratios and comparing them from one period to the next.
C) Performing horizontal analysis.
D) Performing vertical analysis.

Accepted Answer

Comparing account balances in the statements from one period to the next may not reveal all anomalies because some transactions may not affect account balances directly or may be spread across different accounts. The other options, calculating key ratios, performing horizontal analysis, and performing vertical analysis, are more effective methods for identifying anomalies.

Question 8

While methods like high-low slope, average slope, handshaking, and Box-Jenkins exist, one of the most popular techniques for summarizing the slope of a graph is:
A) summarization.
B) stratification.
C) statistical regression.
D) arithmetic progression.

Accepted Answer

Statistical regression is a widely used method for summarizing the slope of a graph. It involves fitting a regression line to the data points on the graph, which allows for the calculation of the slope and other statistical measures of the relationship between the variables. The other options listed are not commonly used for summarizing slope.

Question 9

Horizontal analysis is performed when:
A) total assets are set at 100% and all other balances are shown as a percentage of total assets.
B) financial statement data are shown for two periods with the amount and percentage of change for each line item.
C) there is a need to calculate and compare key ratios from period to period.
D) income statement amounts are shown as a percentage of total sales.

Accepted Answer

Horizontal analysis compares financial statement data for two periods and shows the amount and percentage of change for each line item. Option A is referring to vertical analysis. Option C is referring to ratio analysis. Option D is referring to a specific type of vertical analysis called common-size analysis.

Question 10

Which statistical approach is one of the most powerful and yet simple methods for identifying outliers?
A) N-grams
B) Z-score
C) Time-trend analysis
D) Soundex algorithm

Accepted Answer

Z-score is a powerful and simple method for identifying outliers. It is easy to calculate and helps in standardizing the data by measuring the deviation of a value from the mean in units of standard deviation. Any data point with a Z-score greater than 3 or less than -3 is considered an outlier.

Question 11

Benford's Law:
A) applies to numbers that have built-in limits.
B) is most effectively used with assigned numbers.
C) applies best to numbers that occur naturally.
D) uses ratios to detect fraud.

Accepted Answer

Benford's Law applies best to numbers that occur naturally, such as those in financial records, population statistics, and scientific data. It is based on the observation that the first digit of such numbers follows a logarithmic distribution pattern, with smaller digits appearing more frequently than larger ones. This pattern can be used to detect potential fraud or anomalies in sets of data.

Question 12

Identify the true statement about detecting fraud using financial statement reports.
A) Performing horizontal analysis requires converting the income statement balances into percentages of gross sales.
B) Vertical analysis is the most direct method of focusing on changes from period to period.
C) Before performing any data-driven analysis that targets fraud and corruption in financial statements, the numbers in all three types of financial statements need to be converted to percentages.
D) Small frauds may not affect the summarized financial statements significantly enough to be detected.

Accepted Answer

Small frauds may not significantly affect the summarized financial statements, making it difficult to detect them using financial statement reports. The other statements in the options are incorrect. Performing horizontal analysis does not always require converting income statement balances into percentages of gross sales. Vertical analysis may not always be the most direct method of detecting changes from period to period. Converting the numbers in all three financial statements to percentages is not always necessary before performing data-driven analysis to detect fraud and corruption.

Question 13

What is the primary advantage of the data-driven approach?
A) The investigator makes hypotheses and tests to see if each one holds true.
B) It is less expensive and time intensive than the traditional approach.
C) The investigator takes charge of the fraud investigation process.
D) Data-driven fraud detection is proactive in nature.

Accepted Answer

The answer of What is the primary advantage of the...

Question 14

Which of the following statements is true about the characteristics of real-time analysis?
A) With real-time analysis in place, there is no need for continual improvement and updating of indicators.
B) It is a distinct technique because it specifically analyzes each transaction for correctness rather than for fraud.
C) Effective real-time analysis allows real-time modification and deletion of less-effective indicators.
D) The most effective real-time analysis uses indicators that are hard-coded into the system.

Accepted Answer

Effective real-time analysis allows for modification and deletion of less-effective indicators in real-time. Continual improvement and updating of indicators is necessary for effective fraud detection. Real-time analysis may analyze each transaction, but it is not specific to correctness or fraud. The effectiveness of indicators may change over time, so hard-coding them into the system may not be the most effective approach.

Question 15

Which approach converts financial statement numbers to percentages of total assets or total sales?
A) Horizontal analysis
B) Vertical analysis
C) Ratio analysis
D) Variance analysis

Accepted Answer

Vertical analysis converts financial statement numbers to percentages of total assets or total sales. Horizontal analysis compares financial statement numbers to past periods, while ratio analysis compares different financial numbers to each other. Variance analysis compares actual performance to budgeted or expected performance.

Question 16

While using financial statement analysis, which ratio will be most useful in assessing the company's operational efficiency?
A) Current ratio
B) Quick ratio
C) Cost of goods sold percentage
D) Inventory turnover

Accepted Answer

The inventory turnover ratio is the most useful ratio in assessing a company's operational efficiency because it measures how efficiently a company is able to manage its inventory and generate sales. A high inventory turnover ratio indicates that a company is selling its products quickly and efficiently, while a low inventory turnover ratio indicates that a company may be struggling to sell its products or may be carrying too much inventory. The other ratios listed (current ratio, quick ratio, and cost of goods sold percentage) are more focused on a company's liquidity and profitability, rather than its operational efficiency.

Question 17

is the splitting of complex data sets into case-specific tables.
A) Deviation
B) Stratification
C) Data mining
D) Soundex

Accepted Answer

Stratification is the process of dividing a complex data set into smaller, more manageable segments or tables based on specific criteria or variables. This can help to identify patterns or trends within each segment and make it easier to analyze and interpret the data. Deviation refers to a measure of how much a dataset or individual values differ from a standard or expected value. Data mining is the process of extracting useful information or patterns from large sets of data, and Soundex is a phonetic algorithm used to index names based on their pronunciation.

Question 18

are a two-dimensional view with cases in one dimension and the calculations in the other.
A) N-grams
B) Z-scores
C) Pivot tables
D) Soundex algorithms

Accepted Answer

Pivot tables are a two-dimensional view where cases are shown in one dimension and calculations are shown in the other. N-grams are a technique in natural language processing, Z-scores are a statistical measure, and Soundex algorithms are used for phonetic matching.

Question 19

According to Benford's Law, 5 will be the first digit of a random number set:
A) more often than 1.
B) less often than 4.
C) about the same as 6.
D) more often than 3.

Accepted Answer

Benford's Law predicts that lower digits appear as the first digit more frequently than higher digits in many naturally occurring sets of numbers. According to this law, 1 appears as the first digit about 30% of the time, and the frequency decreases as the digits increase, with 9 as the first digit less than 5% of the time. Therefore, 5 will appear as the first digit less often than 4, aligning with option B.

Question 20

Most software packages have functions for generating about columns of data, which include statistical summaries like control totals, mean, maximum, minimum, standard deviation, number of zero values, number of empty records, and so on.
A) captions
B) histograms
C) headings
D) descriptives

Accepted Answer

The given options are related to generating data columns and statistical summaries. Out of the given options, 'descriptives' is the most appropriate choice as it directly relates to the statistical summaries mentioned in the statement.

Quiz 6: Data-Driven Fraud Detection

Which of the following ratios can be used to assess a company's solvency?

Benford's Law can help detect fraud by:

One way to view the results of multiple indicators is to use a chart called a:

Which of the following statements is true about ODBC?

A mathematical algorithm that predicts the percentage of the time each digit will appear in a sequence of numbers is:

Identify the formula used to calculate z-score.

Which of the following is least effective while searching for anomalies?

While methods like high-low slope, average slope, handshaking, and Box-Jenkins exist, one of the most popular techniques for summarizing the slope of a graph is:

Horizontal analysis is performed when:

Which statistical approach is one of the most powerful and yet simple methods for identifying outliers?

Benford's Law:

Identify the true statement about detecting fraud using financial statement reports.

What is the primary advantage of the data-driven approach?

Which of the following statements is true about the characteristics of real-time analysis?

Which approach converts financial statement numbers to percentages of total assets or total sales?

While using financial statement analysis, which ratio will be most useful in assessing the company's operational efficiency?

is the splitting of complex data sets into case-specific tables.

are a two-dimensional view with cases in one dimension and the calculations in the other.

According to Benford's Law, 5 will be the first digit of a random number set:

Most software packages have functions for generating about columns of data, which include statistical summaries like control totals, mean, maximum, minimum, standard deviation, number of zero values, number of empty records, and so on.