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 actions would be considered an agency problem in the context of the fraud triangle?

A company donates to charity as part of its corporate social responsibility program.

A manager manipulates financial statements to increase their bonus.

An employee follows company policy when recording transactions.

A shareholder votes in favor of a proposed merger.

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Verified step by step guidance

Understand the concept of the fraud triangle, which consists of three elements: opportunity, pressure (or incentive), and rationalization. These elements explain why individuals commit fraud.

Recognize that an agency problem arises when there is a conflict of interest between the goals of the principal (e.g., shareholders) and the agent (e.g., managers or employees). This often leads to actions that benefit the agent at the expense of the principal.

Analyze each option provided in the question to determine whether it aligns with the fraud triangle and represents an agency problem.

Option A: A company donating to charity as part of its corporate social responsibility program does not involve fraud or an agency problem, as it aligns with ethical business practices.

Option B: A manager manipulating financial statements to increase their bonus fits the fraud triangle (pressure to increase bonus, opportunity to manipulate statements, and rationalization of their actions) and represents an agency problem, as it benefits the manager at the expense of the company and shareholders.