Fraud triangle

Definition

The fraud triangle is a model for explaining the factors that cause someone to commit occupational fraud. It consists of three components: opportunity, pressure, and rationalization.

5 Must Know Facts For Your Next Test

1. Opportunity refers to the situation that enables fraud to occur, often due to weak internal controls.
2. Pressure is the motivation or incentive behind committing fraud, such as financial difficulties or personal vices.
3. Rationalization allows individuals to justify their fraudulent actions, making them feel that their behavior is acceptable.
4. Understanding the fraud triangle helps in designing effective internal controls to prevent and detect fraud.
5. Assessing all three elements of the fraud triangle can aid auditors and management in identifying potential risks.

Review Questions

• What are the three components of the fraud triangle?
• How does opportunity contribute to the occurrence of fraud?
• Why is rationalization an important aspect of understanding fraudulent behavior?

Related terms

Internal Controls:

Processes put in place by management to ensure integrity of financial and accounting information.

Occupational Fraud: Fraud committed by employees against their employers through theft or deception.

Audit: An official examination and verification of financial accounts and records.