AN ANALYSIS OF THE FRAUD TRIANGLE

Abstract

The concept of a “Fraud Triangle ” is introduced to the professional literature in SAS No. 99, Consideration of Fraud in a Financial Statement Audit. The Fraud Triangle consists of three conditions generally present when fraud occurs: Incentive/Pressure, Opportunity, and Attitude / Rationalizations. Input from forensic experts, academics and others consistently show that evaluation of information about fraud is enhanced when auditors evaluate in the context of these three conditions. To examine the impact of the fraud triangle on the audit process, this paper develops an evidential network that has two major sub-networks: one to capture risk and evidential relationships for a conventional financial statement audit and the other to capture the risk and evidential relationships for fraud risk assessment. These networks use the Belief Functions approach to express the uncertainties involved in the evidence in a financial statement audit. The results of the analyses support the concept of the fraud triangle in that the three components and the relationships between those components are shown to have a substantial impact on audit risk. i AN ANALYSIS OF THE FRAUD TRIANGLE

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