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 investors is making a common error related to the Fraud Triangle?

Investor C considers management’s incentives and pressures before investing.

Investor A ignores signs of opportunity for fraud within a company’s weak internal controls.

Investor B carefully reviews a company’s financial statements for inconsistencies.

Investor D evaluates the company’s ethical culture and tone at the top.

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Verified step by step guidance

Step 1: Understand the Fraud Triangle concept. The Fraud Triangle consists of three elements that contribute to fraudulent behavior: Opportunity, Incentive/Pressure, and Rationalization. Weak internal controls create opportunities for fraud, which is a critical aspect of the triangle.

Step 2: Analyze the behavior of each investor in relation to the Fraud Triangle. Investor A ignores signs of opportunity for fraud, which directly relates to the 'Opportunity' element of the Fraud Triangle. This is a common error because opportunities for fraud are often overlooked when internal controls are weak.

Step 3: Compare the actions of the other investors. Investor B reviews financial statements for inconsistencies, addressing potential 'Rationalization' or 'Incentive/Pressure.' Investor C considers management’s incentives and pressures, focusing on the 'Incentive/Pressure' element. Investor D evaluates ethical culture and tone at the top, which can influence 'Rationalization.'

Step 4: Identify why Investor A's approach is problematic. Ignoring signs of weak internal controls means failing to address the 'Opportunity' element, which is a critical factor in preventing fraud. This oversight can lead to increased risk of fraudulent activities within the company.

Step 5: Conclude that Investor A is making a common error related to the Fraud Triangle by neglecting the 'Opportunity' element, which is a fundamental aspect of assessing fraud risk in financial accounting.