Multiple Choice
To avoid evaluation errors and increase accuracy, a company should use which type of preparation when handling financial information?
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
Struggling with Financial Accounting?
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Which of the following is NOT one of the three elements of the fraud triangle?
A
Materiality
B
Rationalization
C
Incentive/Pressure
D
Opportunity
Verified step by step guidance1
Understand the concept of the fraud triangle: The fraud triangle is a model used to explain the factors that lead to fraudulent behavior. It consists of three elements: Rationalization, Incentive/Pressure, and Opportunity.
Review the definitions of each element: Rationalization refers to the justification a person uses to commit fraud. Incentive/Pressure refers to the motivation or financial pressure that drives someone to commit fraud. Opportunity refers to the circumstances that allow fraud to occur, such as weak internal controls.
Identify the term 'Materiality': Materiality is a concept in accounting that refers to the significance of an amount, transaction, or discrepancy in financial statements. It is not related to the fraud triangle.
Compare the options provided: Rationalization, Incentive/Pressure, and Opportunity are all elements of the fraud triangle. Materiality is not part of the fraud triangle.
Conclude that the correct answer is the term that does not belong to the fraud triangle, which is 'Materiality'.
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