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 element of the Fraud Triangle is most directly increased when a company faces high levels of debt, thereby creating financial risk and instability?

Collusion

Opportunity

Pressure (Incentive)

Rationalization

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Verified step by step guidance

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

Recognize that 'Pressure' refers to the financial or personal stress that motivates an individual to commit fraud. This can include factors like high levels of debt, financial instability, or unrealistic performance expectations.

Analyze the scenario where a company faces high levels of debt. This creates financial risk and instability, which directly increases the pressure on individuals within the organization to find ways to alleviate the financial strain.

Compare the other elements of the Fraud Triangle: 'Opportunity' refers to the ability to commit fraud due to weak internal controls, and 'Rationalization' involves justifying fraudulent behavior. Neither of these is directly tied to the financial risk caused by high debt levels.

Conclude that the element most directly increased by high levels of debt and financial instability is 'Pressure (Incentive)', as it creates a strong motivation for individuals to engage in fraudulent activities to resolve financial challenges.