CFE-Fraud-Prevention-and-Deterrence Exam Dumps - ACFE Certified Fraud Examiner Questions and Answers

COSO Definition of Internal Control:

COSO defines internal control as a process enacted by an entity's board, management, and personnel to provide reasonable assurance regarding objectives in operations, reporting, and compliance.

Analysis of Options:

A. Operational risk assessment: A component of internal control, not the overall process.

C. Fraud risk management: Focuses specifically on fraud risks, a subset of internal control.

D. Financial reporting: A specific objective addressed by internal control.

Conclusion:The correct answer is internal control, as defined by COSO.

References:COSO Internal Control—Integrated Framework​​.

Corporate Governance Requirements for Public Corporations:

Publicly traded companies must adhere to the listing standards of the stock exchanges where their shares are traded (e.g., NYSE or NASDAQ).

B. G20/OECD Principles: These are guidelines, not binding requirements.

C. No requirements: Incorrect; corporate governance regulations apply regardless of jurisdiction.

D. Universal Corporate Governance Act: No such act exists globally.

Conclusion:Public corporations must comply with stock exchange-specific listing standards.

References:Corporate governance standards and listing requirements​​.

Treadway Commission Recommendations:

Establishing an independent audit committee is essential for oversight and reducing fraud risk in financial reporting.

Audit committees play a critical role in ensuring the integrity of financial statements.

Analysis of Other Options:

A. Shareholder oversight of hotlines: Not a Treadway Commission recommendation.

B. Compensation committee resources: Not directly related to fraud prevention.

C. Management charter: Unrelated to the recommendations.

Conclusion:Mandatory independent audit committees are a key recommendation to reduce fraud risk.

References:Treadway Commission’s Report on Fraudulent Financial Reporting​​.

Collusion between contractors is an example of external fraud risk because it involves external parties conspiring to defraud the organization. The other options describe internal fraud risks, such as actions committed by employees within the organization.

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International Standards on Auditing (ISAs) Requirements:

ISAs require auditors to communicate suspected or confirmed fraud to "those charged with governance" of the organization, as they have the responsibility for oversight.

ISA 240, “The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements,” mandates that findings be reported to appropriate governance bodies before considering further actions.

Confidentiality and Legal Obligations:

Auditors must maintain confidentiality unless legal or regulatory frameworks require disclosure to authorities. Immediate reporting to law enforcement (option B) may breach confidentiality without proper internal escalation.

Why Option D is Correct:

Reporting to governance ensures proper internal actions are taken and protects the integrity of the audit process. It allows the organization to address the issue before external involvement if required.

References:

ISA 240 and the ACFE guidelines on professional auditor conduct​​.

Fraud Reporting Program Best Practices:

Ensuring anonymity encourages employees to report fraud without fear of retaliation. This enhances the effectiveness of the reporting program.

Why D is Correct:

Communicating confidentiality builds trust and increases participation in the fraud reporting program.

Why Other Options are Incorrect:

A: Fraud risks are not limited to organization size.

B: Restricting reports to immediate supervisors may create barriers.

C: Holding employees accountable for unsubstantiated tips discourages reporting.

References:

ACFE’s recommendations for successful fraud reporting systems emphasize confidentiality and employee trust​​.

References for All Questions:

ACFE Fraud Examination Guide​​.

COSO framework and ISA auditing standards​​.

Industry best practices for fraud prevention, governance, and due diligence​​.

 Definition of Focus Groups:

Focus groups involve small groups of individuals discussing a specific topic under the guidance of a facilitator. This technique is used to gather qualitative insights through direct interaction and observation.

 Why A is Correct:

Observing employee interactions during a focus group provides rich, contextual data about attitudes, understanding, and engagement with fraud awareness training.

 Why Other Options are Incorrect:

B (Surveys): Collect quantitative data but lack interaction and observational opportunities.

C (Anonymous feedback mechanisms): Useful for confidentiality but do not allow observation.

D (Interviews): Individualized and do not involve group dynamics​​.

 Corruption and Fraud Risks:

Corruption involves abuse of power for personal or organizational gain and includes bribery, kickbacks, and aiding vendor fraud.

 Why B is Correct:

Espionage by competitors is not typically classified as corruption, as it does not directly involve abuse of internal authority or a relationship of trust. It is instead an external threat.

 Other Options:

A, C, and D are classical examples of corruption-related fraud risks​​.