Certified Fraud Examiner Practice 2025 - Free Practice Questions and Study Guide

The method that compares expenditures to income levels to evaluate financial status is correctly identified as the Expenditures Method. This approach involves examining an individual's or entity's spending habits in relation to their reported income. By analyzing expenditures, it's possible to determine if someone's financial situation is sustainable or if they are potentially living beyond their means.

The Expenditures Method is particularly useful in fraud examination because it can highlight discrepancies between reported income and actual spending patterns. If a person's expenditures significantly exceed their reported income, it may raise red flags about their financial declaration and could indicate fraudulent activities, such as underreporting income or other financial mismanagement.

Other methods mentioned relate to different aspects of financial analysis. The Asset Method focuses on evaluating total assets and liabilities to gauge financial health, while the Bank Deposits Method involves reviewing bank records to confirm income sources. The Income Method primarily looks at reported income rather than how this income is utilized. Each method provides valuable insights into financial health but does so from distinct angles. The Expenditures Method is unique in its direct comparison of spending and income, making it a critical tool for assessing financial status in relation to potential fraud.