A tendency for fraud may exist when the granting of stock options is dependent on reaching an earnings goal.

Question

Quizplus · Accepted Answer

If executives feel pressure to reach an earnings goal in order to receive stock options, they may be more likely to manipulate financial statements and engage in fraudulent behavior to artificially inflate earnings. This is a type of incentive-based fraud known as earnings management.

A Tendency for Fraud May Exist When the Granting of Stock