Question

Basic 3.8 The fraud triangle Basic E Francine Rideau, controller of Quatco Company, is reviewing the year-end financial statements with Tonya Kowalski, the company president. The financial statements currently report a net income of $563,480. Tonya is applying for a very substantial bank loan for a plant expansion, and thus would like to report a net income of at least $700,000. LO 4 Toward this end, Tonya suggests accruing several sales based on orders received, even though the goods will not be shipped until after year end, and thus they are technically sales of the following year. She said, "If we record sales revenue for these two large orders, our net income should be more than $700,000. This should not be a problem next year, as we will never notice the loss of these sales then, since our sales revenue will dramatically increase once the expanded plant is in place." Required Identify the incentives or pressures to commit a fraud, the opportunity to perpetrate a fraud, and the rationalizations used to justify committing a fraud.

Answer 1