Multiple Choice
According to the fraud triangle, which of the following elements is most likely increased when a small business has suffered from a cyber-attack?
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
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Which of the following can make a product line appear less profitable than it actually is, according to concepts related to fraud and the fraud triangle?
A
Overstating expenses allocated to the product line
B
Understating sales revenue for the product line
C
Recording fictitious sales for the product line
D
Omitting direct costs from the product line's financial statements
Verified step by step guidance1
Step 1: Understand the fraud triangle, which consists of three elements: opportunity, pressure, and rationalization. These elements help explain why individuals commit fraud.
Step 2: Analyze the impact of overstating expenses allocated to the product line. This action increases the reported costs, reducing the apparent profitability of the product line.
Step 3: Examine the effect of understating sales revenue for the product line. This action decreases the reported income, making the product line appear less profitable than it actually is.
Step 4: Consider the implications of recording fictitious sales for the product line. While this inflates revenue, it does not make the product line appear less profitable; instead, it falsely enhances profitability.
Step 5: Evaluate the omission of direct costs from the product line's financial statements. This action reduces reported expenses, which would make the product line appear more profitable, not less profitable.
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