Each of the following scenarios is based on facts in actual fraud. Categorize each scenario as primarilyindicating (1) an incentive to commit fraud (2) an opportunity to commit fraud or (3) a rationalization forcommitting fraud. Also state your reasoning for each scenario.a. There was intense pressure to keep the corporation's stock from declining further. This pressurecame from investors, analysts and the CEO, whose financial well-being was significantlydependent on the corporation's stock price.b. Agroup of top-level management was compensated (mostly in the form of stock options) well inexcess of what would be considered normal for their positions in the industry.c. Top management of the company closely guards internal financial information, to the extentthat even some employees on a "need to know basis" are denied full access.d. Managing specific financial ratios is very important to the company, and both management andanalysts are keenly observant of variability in key ratios. Key ratios for the company changedvery little even though the ratios for the overall industry were quite volatile during the timeperiod.e. In an effort to reduce certain accrued expenses to meet budget targets, the CFO directs thegeneral accounting department to reallocate a division's expenses by a significant amount. Thegeneral accounting department refuses to acquiesce to the request, but the journal entry ismade through the corporate office. An accountant in the general accounting department isuncomfortable with the journal entries required to reallocate divisional expenses. He brings hisconcerns to the CFO, who assures him that everything will be fine and that the entries arenecessary. The accountant considers resigning, but he does not have another job lined up and isworried about supporting his family. Therefore, he never voices his concerns to either theinternal or external auditors.f. Accounting records were either nonexistent or in a state of such disorganization that significanteffort was required to locate or compile them.

Fraud refers to when an individual or an entity deceiving others for personal gain. The fraud…

Each of the following scenarios is based on facts in actual fraud. Categorize each scenario as primarily indicating (1) an incentive to commit fraud (2) an opportunity to commit fraud or (3) a rationalization for committing fraud. Also state your reasoning for each scenario.

Each of the following scenarios is based on facts in actual fraud. Categorize each scenario as primarily indicating (1) an incentive to commit fraud (2) an opportunity to commit fraud or (3) a rationalization for committing fraud. Also state your reasoning for each scenario.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Fraud

Fraud in accounting is the planned manipulation of financial documents to make a false appearance of corporate financial health. Moreover, it includes an employee, accountant, or the company itself misleading investors and shareholders.

Question

Each of the following scenarios is based on facts in actual fraud. Categorize each scenario as primarily
indicating (1) an incentive to commit fraud (2) an opportunity to commit fraud or (3) a rationalization for
committing fraud. Also state your reasoning for each scenario.
a. There was intense pressure to keep the corporation's stock from declining further. This pressure
came from investors, analysts and the CEO, whose financial well-being was significantly
dependent on the corporation's stock price.
b. Agroup of top-level management was compensated (mostly in the form of stock options) well in
excess of what would be considered normal for their positions in the industry.
c. Top management of the company closely guards internal financial information, to the extent
that even some employees on a "need to know basis" are denied full access.
d. Managing specific financial ratios is very important to the company, and both management and
analysts are keenly observant of variability in key ratios. Key ratios for the company changed
very little even though the ratios for the overall industry were quite volatile during the time
period.
e. In an effort to reduce certain accrued expenses to meet budget targets, the CFO directs the
general accounting department to reallocate a division's expenses by a significant amount. The
general accounting department refuses to acquiesce to the request, but the journal entry is
made through the corporate office. An accountant in the general accounting department is
uncomfortable with the journal entries required to reallocate divisional expenses. He brings his
concerns to the CFO, who assures him that everything will be fine and that the entries are
necessary. The accountant considers resigning, but he does not have another job lined up and is
worried about supporting his family. Therefore, he never voices his concerns to either the
internal or external auditors.
f. Accounting records were either nonexistent or in a state of such disorganization that significant
effort was required to locate or compile them.

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