Question

Discuss the fraud triangle, its components, its use, and its limitations.

Answer 1

A) Fraud Triangle : It is an organized framework of auditing that explanation what are the basic motivation to take decision of committing  fraud by the employees or individuals.

B) Components of Fraud triangle :

A) Opportunity

B) Pressure  [ Known as incentive or motivation ]

C) Rationalization

C) Use of fraud triangle :- Fraud triangle helps to understand the reasons of committing fraud and to make proactive steps to address the causal of frauds before it originally take place. It allows management to limit the pressure on employees.

D) Limitations of fraud triangle : A) Fraud triangle is from the fraudsters perspective so two attributes namely pressure and rationalization are generally non observable.

B) It does not adequately explain the actions of pathological fraudsters.