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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Fraud and error

During planning of the audit of Lumen Retail Ltd, the audit senior notes that the finance director's bonus depends entirely on reaching a profit target that is well above prior-year results. Under ISA 240, which element of the fraud triangle does this situation most directly represent?

The bonus linked to a demanding profit target is incentive or pressure. It gives management a motive to manipulate reported profit. Opportunity concerns weak controls or override ability, rationalisation concerns justifying the act, and professional scepticism is the auditor's mindset rather than a fraud triangle element.

  1. AIncentive or pressureCorrect
  2. BOpportunity
  3. CRationalisation
  4. DProfessional scepticism

Explanation

A bonus tied to an ambitious profit target creates a motive to misstate results, which is the incentive or pressure element. Opportunity relates to weak controls or the ability to override them, and rationalisation relates to the attitude that justifies the act. Professional scepticism is an auditor attribute, not a fraud triangle element.

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