In Comparing Management Fraud with Employee Fraud, the Auditor's Risk

question 145

Multiple Choice

In comparing management fraud with employee fraud, the auditor's risk of failing to discover the fraud is

• A) greater for management fraud because managers are inherently more deceptive than employees.
• B) greater for management fraud because of management's ability to override existing internal controls.
• C) greater for employee fraud because of the higher crime rate among blue collar workers.
• D) greater for employee fraud because of the larger number of employees in the organization.

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Definitions:

Mental Accounting

The tendency people have to create separate “mental boxes” (or “accounts”) in which they deal with particular financial transactions in isolation rather than dealing with them as part of an overall decision-making process that would consider how to best allocate their limited budgets across all possible options by using the utility-maximizing rule.

Price Changes

Variations in the cost of goods and services over time, influenced by inflation, supply and demand, and market dynamics.

Risk Averse

A description of an individual or entity's preference for avoiding loss over making a gain, indicating a higher value placed on avoiding risk than on potential rewards.

Prospect Theory

A behavioral economic theory proposing that people value gains and losses differently, leading to value-driven decision-making rather than strictly rational.