Multiple Choice
Which component of the fraud triangle is most directly addressed by a rule that prohibits exaggeration, misrepresentation, or concealment of pertinent facts?
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
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Which of the following is NOT one of the components of the fraud triangle?
A
Liquidity
B
Rationalization
C
Pressure
D
Opportunity
Verified step by step guidance1
Understand the concept of the fraud triangle: The fraud triangle is a model used to explain the factors that lead to fraudulent behavior. It consists of three components: Pressure, Opportunity, and Rationalization.
Define each component: Pressure refers to the motivation or need to commit fraud, such as financial difficulties. Opportunity is the ability to commit fraud due to weak internal controls or lack of oversight. Rationalization is the justification or reasoning that makes the fraudulent act acceptable in the perpetrator's mind.
Analyze the options provided: Liquidity, Rationalization, Pressure, and Opportunity. Compare each term to the components of the fraud triangle.
Recognize that Liquidity is not part of the fraud triangle: Liquidity refers to the ability of an entity to meet its short-term financial obligations, which is unrelated to the factors that lead to fraudulent behavior.
Conclude that Liquidity is the correct answer as it does not belong to the fraud triangle components.
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