Multiple Choice
Which of the following best describes when an error is considered material in financial accounting?
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
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Which of the following is considered an indirect cost of workplace fraud, according to the fraud triangle framework?
A
Legal fees paid to prosecute the fraudster
B
Loss of employee morale
C
Direct financial loss from stolen assets
D
Replacement cost of stolen inventory
Verified step by step guidance1
Understand the fraud triangle framework, which consists of three elements: opportunity, pressure, and rationalization. These elements help explain why individuals commit fraud.
Differentiate between direct and indirect costs of workplace fraud. Direct costs are tangible and measurable, such as stolen assets or legal fees. Indirect costs are intangible and harder to quantify, such as loss of employee morale or damage to reputation.
Analyze the options provided in the question. Legal fees, direct financial loss, and replacement costs are all direct costs because they involve measurable financial expenditures.
Recognize that loss of employee morale is an indirect cost because it affects the workplace environment and employee productivity, which are not directly measurable in monetary terms.
Conclude that the correct answer is 'Loss of employee morale,' as it aligns with the definition of an indirect cost in the context of workplace fraud.
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