IIA-IAP practice question 6 of 35

Based on the three elements of the Fraud Triangle, which of the following might be considered a fraud indicator related to the opportunity element?

Answer options

A: Reserves were established based on conservative assumptions to maximize the amounts set aside for when operating results may not meet investors' expectations

B: Executive management establishes financial performance objectives for business unit managers. The objectives include significant increases in annual sales and market penetration

C: Poor segregation of duties allows for an executive assistant to authorize payments to one-time vendors without supervisory approvals Correct answer

Correct Answer:

C. Poor segregation of duties allows for an executive assistant to authorize payments to one-time vendors without supervisory approvals

Explanation

Comprehensive and Detailed Step-by-Step Explanation: Opportunity Element: This element of the Fraud Triangle refers to situations where weaknesses in controls provide the ability for someone to commit fraud without being detected. Poor segregation of duties, as described in Option C, creates such opportunities.
Example: Allowing an executive assistant to authorize payments without oversight significantly increases the risk of fraud.
Reference: IIA Practice Guide on Fraud Risk Management identifies segregation of duties as a critical control to mitigate opportunities for fraud. Other Options:
Option A: This describes potential pressure rather than opportunity.
Option B: This describes setting challenging performance objectives, which could lead to rationalization or pressure but not directly opportunity. Thus, the correct answer is C.

Keep practicing

Take the free IIA-IAP practice test

Ten exam-style questions with answers and explanations, plus the exam facts and study guides.

Start the free practice test