Question

In: Accounting

Explain the five conditions necessary for an act to be considered fraudulent.

Explain the five conditions necessary for an act to be considered fraudulent.

Solutions

Expert Solution

Fraud denotes a false representation of a material fact made by one party to another party with the intent to deceive and induce the other party to justifiably rely on the fact to his or her detriment. According to common law, a fraudulent act must meet the following five conditions:

1.

False representation. There must be a false statement or a nondisclosure.

2.

Material fact. A fact must be a substantial factor in inducing someone to act.

3.

Intent. There must be the intent to deceive, or the knowledge that one’s statement is false.

4.

Justifiable reliance. The misrepresentation must have been a substantial factor on which the injured party relied.

5.

Injury or loss. The deception must have caused injury or loss to the victim of the fraud.


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