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In: Accounting

Define the Fraud Triangle and then discuss which of the three most common factors - opportunity,...

Define the Fraud Triangle and then discuss which of the three most common factors - opportunity, rationalization and financial need - are most responsible for causing executives, managers, and other employees to commit occupational fraud

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Expert Solution

Fraud is any action done by a person or group of persons to cheat with a motive to obtain benefit.

The fraud triangle refers to the three main causes or reasons that are responsible for committing fraud.

i) Opportunity: When there is no chance or scope for doing fraud or there is high risk of being detected, then the person would not try to commit fraud. But if there is ample scope for cheating due to the presence of loopholes and lack of internal control in the organization, the person may commit fraud.

ii) Financial Needs: If there arises financial problems in the life of a person it can lead him to commit fraud.

iii) Rationalization: If the person forms the opinion that there is nothing wrong in committing fraud because the organization is already earning huge amounts of profit, he might engage in corrupt practice.

Occupational fraud in an organization means deceiving by the person who is working in that organization through misuse of assets and financial statements of the organization.

The factor which can be considered mostly responsible for occupational fraud is the opportunity factor because even if there is financial pressure the person might fear or fail to commit fraud if there is constant monitoring and thorough check of activities of all persons working in the organization. But if the person finds an easy opportunity of gaining big without being detected he might seize such an opportunity without rationalizing his doing.


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