Fraudulent financial reporting is an intentional misstatement or omissionof amounts or disclosures with the intent to deceive users. Two examples offraudulent financial reporting are accelerating the timing of recording sales revenue to increase reported sales and earnings, and recording expenses as fixed assets to increase earnings.


11-2       Misappropriation of assets is fraud that involves theft of an entity’s assets.Two examples are an accounts payable clerk issuing payments to a fictitious company controlled by the clerk, and a sales clerk failing to record a sale and pocketing the cash receipts.


11-3    The three conditions of fraud referred to as the “fraud triangle” are (1) Incentives/Pressures; (2) Opportunities; and (3) Attitudes/Rationalization.Incentives/Pressures are incentives of management or other employees tocommit fraud. Opportunities are circumstances that allow management oremployees to commit fraud. Attitudes/Rationalization are indications that anattitude, character, or set of ethical values exist that allow management oremployees to commit a dishonest act or they are in an environment that imposes sufficient pressure that causes them to rationalize committing a dishonest act
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