Sam Jones,controller of Mitnikco,spends three days researching the accounting standards to find loopholes in the "rules" and to make a case for recognizing revenue earlier,rather than in later years.In the end,Sam and the other members of management determine that they will reduce the company's deferred revenue accounts and begin accounting for all revenues as agreements are signed.Based solely on the preceding information,which element of fraud is represented by the actions of Mitnikco management?
A)Pressures.
B)Opportunity.
C)Rationalization.
D)Skepticism.

Question

Quizplus · Accepted Answer

The element of fraud represented by the actions of Mitnikco management is rationalization. Sam Jones and other members of management have justified reducing the company's deferred revenue accounts and recognizing revenue earlier by finding loopholes in accounting standards. They are rationalizing their actions as legal and acceptable, even though they may not be in compliance with GAAP. This is a common tactic used by individuals committing fraud to justify their actions.

Sam Jones,controller of Mitnikco,spends Three Days Researching the Accounting Standards