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Accounting 10

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Auditing standards note that three conditions are generally present when fraud occurs. Research the authoritative standards for auditors and provide a brief summary of each of the three fraud conditions. Additionally, provide an example from the Comptronix fraud of each of the three fraud conditions.
The Fraud Triangle is one of the most well-known theories, taking a look at motivation, opportunity, and rationalization. The first factor, motivation, can also be seen as an incentive or pressure. Motivation can include personal failures, gaining status, or poor relations between an employer and employee. The second factor of the fraud triangle, opportunity, builds upon an individual’s desire and pressure to commit fraud. Without a perceived opportunity to do so, the individual most likely will not act upon his or her motivation. An opportunity can be the awareness of the company’s poor internal controls and the individual’s access to the information, as well as the technical skills needed to actually commit fraud. Rationalization, the third aspect of the fraud triangle, revolves around how the individual justifies committing fraud. Usually, individuals who commit fraud are first time offenders, so rationalization plays a key component. Examples range from unfair treatment, to the intent to reverse the fraud after some time.
With regards to the Comptronix fraud, the three individuals who committed fraud are Hebding (chairman and CEO), Shifflett (president and COO), and Medlin (controller and treasurer). Looking at the three fraud conditions, their motivation may have stemmed from the loss of a key customer in 1989 to their previous employer, SCI, keeping up with their high status and reputation, bonuses, and poor personal relationships. Secondly, the executives all had the opportunity to commit fraud. With their high and multiple positions, they controlled the...

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