Multiple Choice
A common financial risk that entrepreneurs encounter is:
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
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Which component of the fraud triangle is most directly addressed by a rule that prohibits exaggeration, misrepresentation, or concealment of pertinent facts?
A
Rationalization
B
Opportunity
C
Pressure
D
Integrity (or lack thereof)
Verified step by step guidance1
Understand the fraud triangle, which consists of three components: Pressure, Opportunity, and Rationalization. These are the factors that contribute to fraudulent behavior.
Recognize that the fraud triangle does not explicitly include 'Integrity' as a component, but integrity (or lack thereof) is closely related to Rationalization, as it involves justifying unethical behavior.
Analyze the rule mentioned in the problem: prohibiting exaggeration, misrepresentation, or concealment of pertinent facts. This rule directly addresses ethical behavior and integrity.
Connect the rule to Rationalization, as it aims to prevent individuals from justifying unethical actions by enforcing honesty and transparency.
Conclude that the rule indirectly addresses Rationalization by promoting integrity, which reduces the likelihood of individuals rationalizing fraudulent behavior.
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