Question

All of the following tend to be rationalizations for fraud except:

a. We need to protect the shareholders and keep the stock price high b. All companies use aggressive accounting techniques
c. The employee will be fired unless s/he goes along with the fraud
d. We are correcting a temporary problem that will not exist in the future

Answer 1

Answer: c. The employee will be fired unless s/he goes along with the fraud

Explanation: Fraud in the corporate environment is when an individual acts on his own or one/group of people act on behalf of an organisation to deceive others in order to get some form of financial gain.

For fraud to occur, there has to be an opportunity to commit fraud, an incentive and a rationalization which makes the fraud seem alright.

When Fraud is committed on behalf of an organisation, some of the rationalizations used are: protecting the shareholders, everyone else does it and viewing it as a temporary measure. Any of these applies to fraudulent accounting practices where the accounting statements do not truly reflect the operations of the business.