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131 Cards in this Set

  • Front
  • Back
Assets = ?
Liabilities + Owners' Equity
Revenue Recognition
Persuasive evidence of an arrangement exists; Delivery has occurred or services have been rendered; the seller's price to the buyer is fixed or determinable; Collectibility is reasonably assured
Going Concern - Continuity Assumption
The life of an entity will be long enough to fulfill its financial and legal obligations. Any evidence to the contrary must be reported on FS.
Substance over Form
The economic substance of a transaction determines the accounting treatment, which might differ from the legal treatment; lease example
What is financial statement fraud?
Deliberate misreprensentation of the financial condition of an enterprise accomplished through the intentional misstatement or omission of amounts or disclosures in the FS to deceive the FS users
FS fraud comprised of what % with a median loss of ?
7.6%, $1,000,000
Fraud in FS typically takes the form of:
1) Overstated assets or revenue 2)Understated liabilities and expenses
Fraud with Govt. contracts takes the form:
1) Assets and revenues are understated 2) Liabilities and expenses are overstated
5 classes of FS schemes:
1)Fictitious revenues 2)Timing differences 3)Improper asset valuations 4)Concealed liabilities & expenses 5)Improper disclosures
Red flags with Fictitious Revenue?
1)rapid growth, profitability 2)recurring neg cash flows while reporting earnings growth 3)Sign. transactions with related parties not in ordinary course of business 4)sign., unusual, complex transactions, especially those close to close period and pose "substance over form" issues 5)unusual sales growth; sales recorded by hqs
4th Admendment
guarantees the right of all citizens to be free from unreasonable searches & seizures
5th Admendment
guarantees subjects of a criminal investigation the right to refuse to answer questions or to provide certain personal information that might be incriminating
6th Admendment
affords subjects in a criminal investigation the right to counsel, the right to cross-examine, and a right to a speedy trial
Substantive law
composed of the basic laws of rights and duties (contract, tort, criminal, etc)
procedural law
involves rules governing pleadings, evidence, jurisdicition
Two sources of substantive law:
1) statutory 2) common
Statutory law
statutes passed by the federal or state legislatures
Common law
consists of usages and customs of a society as interpreted by the judiciary; often referred to as "jungle-made" law. criminal law is statutory; civil actions can be either
Common law is based on?
precedents established by previously decided cases
The body of judicial opinions is sometimes referred to as
case law
the power of a court to hear and decide a given case; it refers to the subject matter or persons over which lawful authority authority may be exercised
refers to the geographical area covered by the court
3-part test to determine the proper court to hear a case:
1) Does the court hear cases of the type in question?
2) Does the court have the authority to exercise its power over a particular defendant or piece of property?
3) Does the claim arise within the court's venue?
Federal courts have jurisdiction in:
1)federal question cases
2)diversity jurisdiction cases
Lower State Court:
misdemeanors or prelims for felony cases, civil disputes below certain $ amount
Higher level State Court:
sometimes called Superior courts; try felony and civil disputes about a certain $ amount
Appellate Courts
review trial court decisions
Superior appellate (Supreme)
review lower appellate court decisions
Each federal district has chief prosecutor and staff prosecutors known as
United States Attorney, Assitant United States Attorneys
bench trial
If a jury is waived by the defendant and government, the judge decides both the facts and the law in what is called a bench trial
Civil case burden of proof
Usually is a preponderance of the evidence as opposed to a "reasonable doubt" in a criminal case
Appeals involve questions of law or
questions involving both law and fact
Appealing a verdict
only a convicted defendant in a criminal case can appeal a verdict
T/F? The government cannot appeal an acquittal on the mertits?
The prosecution may appeal appeal what?
Adverse pre-trial rulings on the admissibility of evidence and certain other matters that can terminate a prosecution temporarily.
T/F? Either party in a civil case may appeal a judgment?
In the Federal system, how is an appeal to the US Supreme Court accomplished?
writ of certiorari
How can fraud cases be prosecuted?
Criminally, civilly, or both, in sequence or simultaneously
What is a key difference between criminal and civil actions for fraud concerns?
Who files the suit. Criminal are brought by the govt. Civil may be brought by private individuals or organizations, with or w/o gove involvement
What is a grand jury?
investigative body that is empowered to issue subpoenas for testimony and documents to deter whether a violation of the law has occured.
What is a subpoena?
legal orders to produce documents, witnesses, or other things
Miranda warnings
notice of the rights to remain silent and to retain an attorney
Burden of Proof
Refers to a particular party's obligation to produce evidence on a certain issue.
affirmative defenses
a defense in which the defendant offers evidence that, if found to be credible, will negate liability, even if the defendant committed the illegal acts
3 types of monetary remedies:
1)Compensatory damages 2) Restitutionary damages 3) Punitive damages
Compensatory Damages
Awarded to compensate the plaintiff for a loss, injury, or harm. The goal of this remedy is to put the plaintiff in the position he would've been in, had the offenses not occurred.
Restitutionary damages
Do not compensate the plaintiff on the basis of measured loss, but instead take back any profits that a defendant made as a result of the offense and award them to the plaintiff.
Punitive Damages
like Restitutionary damages, are not based on compensating the victim for harm suffered; instead, they are designed to punish the wrongdoer and deter similar conduct.
Declaratory remedies
remedies in which the court states or declares the rights of the parties.
Equitable remedies
Remedies used when the legal remedy by itself would be inadequate compensation for the wronged suffered.
One of the primary equitable remedies. It is a court order by which a party is required to perform, or is restrained from performing, a specific act.
Parallel proceedings
simultaneous criminal and civil actions agains the same defendant that are based upone a single set of facts.
Parallel Investigations
simultaneous independent investigations conducted by civil regulatory agencies and federal prosecutors that involve substantially the same issues and parties.
US. v. Stringer
Ninth Circuit addressed the applicable boundaries of lawful government conduct while conducting parallel investigations. Case underscores the possibility that a federal criminal investigation may be skulking behind every ongoing civil investigation.
Legal liability
status of being legally responsible for a situation. two forms: strict liability and vicarious liability
Strict liability
an offense in which no criminal intent is required (the govt must prove only that the defendant performed the act; it does not have to prove that the defendant performed the conduct with any particular mental state)
vicarious liability
an offense in which a person without personal fault is held liable.
respondeat superior
under this doctrine, a corporation is liable for the acts of their employees if those acts occure within the scope of employment and with some intent to benefit the corporation
culpable mens rea
"a guilty mind"
Duty of Loyalty
Directors and officers must act solely in the best interest of the employer/principal, free of any self-dealing, conflicts of interest, or other abuse of the principal for personal advantage.
Duty of Care
Directors and officers must conduct business affairs prudently with the skill and attention normally exercise by people in similar positions
Statutory duties
the numerous statutes regulating directors and officers in regards to securities laws, antitrust laws, tax laws, etc.
mens rea
all multifarious means which human ingenuity can devise, and which are resorted to by one individual to get an advantage over another by false suggestions or suppression of the truth.
Misrepresentation of Material Facts
deliberate making of false statements to induce the intended victim to part with money or property.
Materiality (Misrep of Material Facts)
ususally refers to statements sufficiently important or relevant to a reasonble person in acting or making a decision. The materiality of alledgedly false statements often is a central issue in security fraud cases.
Concealment of Material Facts
essential elements: defendant had knowledge, of a material fact, the defendant had a duty to disclose and failed to do so with intent to mislead or deceive the other party.
offering, giving, receiving, or soliciting of anything of value to influence an act or decision.
Official bribery
to influence an official act of govt.
Commercial bribery
corruption of a private individual to gain a commercial or business advantage. Requires a lack of knowledge or consent on the principal's part
Illegal gratuity
items of value given to reward a decision after it has been made. Illegal gratuity doesn't require that the gratuity was given for the purpose of influencing.
obtaining of property from another with the other party's "consent" having been induced by wrongful use of actual or threatened force or fear.
Conflict of Interest
occurs when an employee or agent (someone who is authorized to act on behalf of a principal) has an undisclosed personal or economic interest in a matter that could influence his professional role.
fraudulent making or altering, false writing or instrument that has legal significance, with the intent to defraud
Uttering a forged
the offering or passing of a forged document as genuine: offering as genuine, forged instrument, intent to defraud
wrongful appropriation of money or property by a person to whom it has been lawfully entrusted. elements: defendant took or converted money or property, w/o knowledge or consent of the owner
unlawful taking of money or property with the intent to convert or to deprive the owner. Unlinke embezzlement, the defendant never has lawful possession
Two typical defenses for a person accused of trade secret theft?
The information was developed independently. Or, the information was not in fact secret, that the third party's use was authorized or the owner abandoned the information.
Breach of Contract
Occurs when one party to a contract fails to perform, or announces that it does not intend to perform, his contractual obligatons without just cause.
Gross Negligence
Intentional failure to perform a duty in reckless disregard of the consequences to the victim
Fiduciary Relationship
People in a position of trust, such as officers, directors, high-level employees
business judgment rule
protects corporate officers and directors from liability for judgments that were made in good faith and that appeared to be prudent base on the then-known circumstances.
Regulation S-X
Provides a list of certain financial, employment, and business relationships between an accountant and an audit client that would likely be inconsistent with independence.
SOX Sec 204
Requires public accounting firms to rotate the lead audit partner of the partner responsible for reviewing the audit every five years.
SOX Sec 206
Seeks to limit conflicts or potential conflicts that arise when auditors come across over to work for their former clients
SOX Sec 301
Requires auditors to report directly to the audit committee
SOX Sec 401
Increases the type and extent of disclosures in periodic reports filed with the SEC.
SOX Sec 402
Makes it illegal for public companies to make personal loans or otherwise extend credit, either directly or indirectly, to or for any director or executive officer.
SOX Sec 403
Establishes disclosures requirements for stock transactions by directors and officers, or by persons who own more than 10% of stock
SOX Sec 306
Directors and officers are prohibited from trading in the company's securities during any pension-fund blackout periods.
SOX Sec 406
Public companies must disclose in their annual report whether they have adopted a code of ethics for senior financial officers, and if they have not, they must explain their reasoning.
SOX Sec 408
Must make regular and systematic reviews of disclosures made by public companies in their periodic reports to the SEC.
SOX Sec 409
Must publicly disclose information concerning material changes in their financial condition or operations.
SOX Sec 802
Makes destroying evidence to obstruct an investigation or any other matter illegal and punishable.
SOX Sec 803
Prevents corporate wrongdoers from sheltering their assets under bankruptcy protection.
Mail fraud
the use of mail to perpetrate a scheme to defraud a victim of money or property.
Wire fraud
use of wire communications to perpetrate a scheme to defraud a victim of money or property. It requires, unlike Mail Fraud, an interstate or foreign communication.
Two elements of 'crime of honest services':
1)a scheme to defraud tthat includes a materials deception 2) with the intent to defraud 3) while using the mail or interstate wires in furtherance of that schemee, and that resulted in the deprivation of the intangible right of honest services.
Racketeer Influenced and Corrupt Organizations prohibits the investment of ill-gotten gains in another enterprise, using coercive and deceptive acts to acquire an interest in an enterprise, and conducting business through such acts.
Sec 1962(c)
RICO; defendant was employed by or associated with an "enterprise" (not legal); engaged in or affected interstate or foreign commerce; conducted the affairs of the enterprise through racketeering (2 or more illegal acts, i.e mail, wire fraud)
Racketeering activity includes:
bribery, extortion, bankruptcy fraud, mail fraud, bank fraud, and securites fraud; these crimes are known as predicate offenses.
Section 1001 of Title 18:
prohibits a person from lying to or concealing material information from a federal official
Section 1001 of Title 18 most often used:
to prosecute false statements to law enforcement or regulatory officials no made under oath, in the course of an official investigation, or on an application.
Sec 1002 of Title 18:
Makes it a crime to knowingly possess any false, altered, forged, or counterfeited writing or document with intent to defraud the government.
Frazier v Cupp?
US Supreme Court indirectly recognized the necessity of using deception during interviews.
Inferential Confusion
Denotes confusion and inaccuracies resulting from errors of inference.
Occurs when the respondent is asked to convert concrete experiences into a higher level of generalization.
Occurs when the respondent is asked to give concrere examples of certain categories of experience.
Circular reaction
the immediate, unwitting response of one person to the subliminam, nonverbal clues of another.
acute emotional crisis
Arises when the interviewee is experienceing an emotional delimma.
proxemic communication
use of interpersonal space to convey meaning
Chronemic communication
the use of time in interpersonal relationships to to convey meaning, attitudes, and desires.
kinetic communication
use of body movement to convey meaning.
Paralinguistic communication
the use of volume, pitch, and voice quality to convey meaning
Informational questions seek to:
elicit unbiased factual information. the interviewer will be alert to inconsistency in facts or behavior.
Controlled Answer Technique
used to stimulate a desired answer or impression. example: "I understand you were present when the internal controls were developed; would you please describe how they were constructed?"
Money laundering:
Disguising of the existence, nature, source, ownership, location, and disposition of property derived from criminal activity.
Money laundering is generally accomplished in three stages:
1)Placement 2)Layering 3)Intergration
process of breaking transactions up into smaller amounts to evade the reporting requirements.
Goals of money laundering:
1) disguise the source of illegal funds 2)convert large stores of currency into other assets
Income statement laundering
occurs when the money launderer records more income on the books of a business than is actually generated by that business.
Disadvantage of overstating revenues?
Taxes will be due on the reported incomes, so it will also want to overstate its expenses to offset its tax liability.
Easiest way to overstate expenses?
reporting payments for supplies never received, professional services never rendered, or wages for fictitious employees.
home ownership equity protection act - protects refinancinging and home equity installment loans
service of process
procedure of servicing a complaint & summons to the defendantand that a civil action has been commmenced. The defendant must answer in writing; otherwise he forfeits the case.
the formal process whereby the parties collect evidence and learn the details of the opposing side's case
Marketing home-based business fraud
require one to buy materials for assemble-at-home products. The consumer is promised that the company will purchase the completed products, and when it does not, the consumer is left with a bad investment and a stock of cheap, worthless goods
Title 31, U.S.C., § 5316, a person shall file a report if he transports or is about to transport monetary instruments of more than
Investment Company Act divides investment companies into three categories. What are face-amount certificate companies?
Companies engaged in issuing face-amount certificates of the installment type.
Investment Company Act divides investment companies into three categories. What are unit investment trusts?
Companies organized under a trust indenture or contract of agency, or those similar in nature, that do not have a board of directors and issue only redeemable securities.
Investment Company Act divides investment companies into three categories. What are management companies?
Firms that do not fit the criteria of the first two categories, including open- and closed-end companies, whether listed on securities exchanges or not.