Multiple Choice
Which element of the Fraud Triangle is most directly increased when a company faces high levels of debt, thereby creating financial risk and instability?
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
Multiple Choice
Which of the following does NOT cause inventory shrinkage?
A
Shoplifting by customers
B
Employee theft
C
Obsolete inventory written off
D
Clerical errors
Verified step by step guidance1
Understand the concept of inventory shrinkage: Inventory shrinkage refers to the loss of inventory that occurs due to reasons other than sales, such as theft, damage, or errors.
Analyze the options provided: Shoplifting by customers, employee theft, and clerical errors are all examples of causes that lead to inventory shrinkage.
Consider the option 'Obsolete inventory written off': Obsolete inventory refers to items that are no longer sellable or usable. Writing off obsolete inventory is an accounting adjustment and does not represent a physical loss of inventory, hence it does not cause inventory shrinkage.
Clarify the distinction: Inventory shrinkage involves unintentional losses, while writing off obsolete inventory is a deliberate accounting action to reflect the reduced value of unsellable goods.
Conclude the reasoning: Based on the analysis, 'Obsolete inventory written off' does NOT cause inventory shrinkage, as it is an accounting adjustment rather than a physical loss.
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