Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

6. Internal Controls and Reporting Cash

Fraud and the Fraud Triangle

Financial Accounting

6. Internal Controls and Reporting Cash

Fraud and the Fraud Triangle

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Multiple Choice

Which of the following statements is most correct concerning the Fraud Triangle and its relation to fraud risk?

The Fraud Triangle states that fraud can only occur if there is a lack of internal controls.

The Fraud Triangle is primarily used to assess market risk in investment portfolios.

According to the Fraud Triangle, only financial pressure is necessary for fraud to occur.

The Fraud Triangle suggests that fraud risk increases when opportunity, pressure, and rationalization are all present.

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Verified step by step guidance

Understand the Fraud Triangle: The Fraud Triangle is a framework used to explain the factors that contribute to fraud. It consists of three elements: opportunity, pressure (or incentive), and rationalization.

Clarify the role of each element: Opportunity refers to the ability to commit fraud due to weak internal controls or lack of oversight. Pressure refers to financial or personal stress that motivates an individual to commit fraud. Rationalization is the mental justification an individual uses to make their fraudulent actions seem acceptable.

Evaluate the first statement: 'Fraud can only occur if there is a lack of internal controls.' This is incorrect because while weak internal controls (opportunity) are a factor, fraud also requires pressure and rationalization.

Evaluate the second statement: 'The Fraud Triangle is primarily used to assess market risk in investment portfolios.' This is incorrect because the Fraud Triangle is not related to market risk; it is a tool for understanding fraud risk.

Evaluate the third statement: 'Only financial pressure is necessary for fraud to occur.' This is incorrect because all three elements—opportunity, pressure, and rationalization—must be present for fraud to occur, as suggested by the Fraud Triangle.