ExpertEasy1 markMultiple Choice
CPA · Question 16 · Area 2: Risk Assessment
While understanding the entity and its environment, the auditor learns that the industry is experiencing a significant downturn and price war. Which component of the fraud triangle does this most directly affect?
While understanding the entity and its environment, the auditor learns that the industry is experiencing a significant downturn and price war. Which component of the fraud triangle does this most directly affect?
Answer options:
A.
Opportunity
B.
Rationalization
C.
Incentive/Pressure
D.
Concealment
How to approach this question
Map the external factor to the Fraud Triangle (Incentive, Opportunity, Rationalization).
Full Answer
C.Incentive/Pressure✓ Correct
Incentive/Pressure
Economic downturns, high competition, and declining margins create financial pressure (Incentive) on management to misstate financial statements to meet expectations or covenants.
Common mistakes
Confusing external pressure with internal opportunity.
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