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

When contracting services from a third party, what type of fraud risk is the organization primarily exposed to according to the Fraud Triangle?

Rationalization risk, since third parties always justify their actions

Opportunity risk, as third parties may exploit weak controls to commit fraud

Incentive risk, as organizations incentivize third parties to commit fraud

Pressure risk, because third parties are under pressure to meet internal targets

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Verified step by step guidance

Step 1: Understand the Fraud Triangle, which consists of three elements: Opportunity, Incentive (or Pressure), and Rationalization. These elements explain the conditions under which fraud is likely to occur.

Step 2: Analyze the scenario of contracting services from a third party. Consider how weak internal controls in the organization might create opportunities for fraud.

Step 3: Evaluate the role of third parties in the fraud risk. Third parties may exploit weak controls, which aligns with the 'Opportunity' element of the Fraud Triangle.

Step 4: Compare the other elements of the Fraud Triangle (Incentive/Pressure and Rationalization) to see if they are as relevant in this context. Rationalization and Pressure are less directly tied to the organization's control environment.

Step 5: Conclude that the primary fraud risk in this scenario is 'Opportunity risk,' as weak controls provide third parties the chance to commit fraud.