Question: For each of the items listed below, indicate if it is an example of: an incentive or pressure to commit financial fraud; opportunity; or rationalization.

For each of the items listed below, indicate if it is an example of: an incentive or pressure to commit financial fraud; opportunity; or rationalization. You may feel that some examples relate to more than one of the three parts of the triangle.

A. There has been a significant decline in customer demand this year.

B. The company believes most other companies in the industry manipulate earnings.

C. The CEO believes that if the company does not meet earnings this period, the company’s lenders will shut it down. The CEO is optimistic that next year’s earnings will be better, and any earnings problems are temporary.

D. The company’s business and accounting are complicated, and the auditing firm does not understand some of the ways the company computes income. The auditing firm tends to accept the company’s estimates without asking questions.

E. Each employee in the company is evaluated every 6 months. The company will fire the bottom 15% of employees, based on reported numbers.

F. The Board of Directors includes only people chosen by the CEO. The Board does little monitoring of the CEO’s actions.

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