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

The Net-Worth Method is best understood as an indirect method to determine unsubstantiated wealth increases. This technique is particularly useful in identifying potential fraud by calculating a person's changes in net worth over time. Analysts assess the difference in net assets from one period to another, attributing increases that cannot be justified by known sources of income to potential fraudulent activities.

This method assumes that if someone's wealth has significantly increased without a corresponding increase in reported income, the difference may indicate undisclosed income from illegal activities or fraud. It effectively circumvents the need for directly proving fraud through traditional income measurement methods, making it suitable for cases where income documentation may be lacking or manipulated.

Other options present different concepts that are not accurate regarding the Net-Worth Method. For instance, while fraudulent gains may eventually be measured, this method does not directly measure those gains. Additionally, it is not focused on estimating the financial impact on businesses specifically, nor is it intended for calculating income for tax reporting, which requires different approaches and documentation.