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CA Final · Advanced Auditing, Assurance and Professional Ethics · Due Diligence, Investigation & Forensic Accounting

During an investigation of suspected financial statement fraud at Rudra Steels Ltd, the CA notes the following: aggressive revenue targets linked to management bonus, a dominant promoter-CEO, and large unusual year-end sales entries reversed in the next quarter. In the fraud triangle, which element is represented by the aggressive bonus-linked targets?

Aggressive bonus-linked targets represent pressure or incentive in the fraud triangle. They create a motive for management to misstate results, whereas a dominant CEO with weak oversight shows opportunity, and rationalisation relates to the attitude used to justify the act.

  1. AOpportunity
  2. BRationalisation
  3. CPressure or incentiveCorrect
  4. DConcealment

Explanation

The fraud triangle has pressure or incentive, opportunity and rationalisation. Bonus-linked targets give a motive to misstate, which is pressure. The dominant CEO relates to opportunity through weak oversight, and the reversal of entries relates to concealment, which is not a triangle element.

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