Chapter 4, Problem 1QC

To determine

To find: The correct option, the option which describes the element of fraud triangle due to weak internal control system

Answer to Problem 1QC

The correct option is (c).

Explanation of Solution

Fraud: Fraud is a deliberate and deceptive action of an employee to obtain unlawful gain from the employer.

The following are three factors of fraud triangle, which collectively contribute for employee fraud:

• Motive
• Opportunity
• Rationalization

Justification for correct answer: The three factors of fraud triangle are motive, opportunity, and rationalization. This is the chance an employee takes advantage of, to commit fraud successfully, when the workplace fails to identify and detect the fraud. So, opportunity is the element of fraud triangle due to weal internal controls in a company. Hence, the correct answer is option (c).

Justification for incorrect answers:

• Option (a) is incorrect answer because motive element emphasizes on the constant compulsion an employee is under, to satisfy luxuries, and to overcome his downtrodden financial status, and to mislead investors by misrepresenting financial statements.
• Option (b) is incorrect answer because attitude is not an element of fraud triangle.
• Option (d) is incorrect answer because rationalization element focusses on the justification provided by an employee and find reasons to support the unethical behavior.

Conclusion

Hence, the correct answer is option (c).