Reference no: EM132523632

Question 1: What is based on facts in an actual fraud. Categorize each scenario as primarily indicating an incentive to commit fraud, an opportunity to commit fraud, or a rationalization for committing fraud. Also state your reasoning for each scenario.

Point a. Managing specific financial ratios is very important to the company, and both management and analysts are keenly observant of variability in key ratios for the company changed very little even though the ratios for the overall industry were quite volatile during the time period.

Point b. In an effort to reduce certain accrued expenses to meet budget targets, the CEO 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.

Point c. Accounting records were either nonexistent or in a state of such disorganization that significant effort was required to locate or compile them.