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Opportunity (low risk of being caught), Financial Pressure (incentive), Rationalization (making situation justifiable) GAAP (generally accepted accounting principles) Financial accounting is governed by concepts & rules.

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Fraud Triangle

Opportunity (low risk of being caught), Financial Pressure (incentive), Rationalization (making situation justifiable)

GAAP (generally accepted accounting principles)

Financial accounting is governed by concepts & rules.
1. Relevant info affects decision of user
2. Reliable info trusted by users
3. Comparable info aids in contrasting organizations

SEC- Securities and Exchange Commission

Federal agency congress has charged to set reporting rules for org that sell ownership shares to public

FASB (Financial Accounting Standards Board)

Independent group of full-time members responsible for setting accounting rules

IASB (international accounting standards board)

Group that identifies preferred accounting practices & encourages global acceptance; issues IFRS

Measurement/cost principle

Accounting info based on actual cost.
-if cash is given for a service, cost is measured by cash paid
-if other is exchanged (car traded for truck), cost is measured as cash value of what is given up or received

This ensure reliability, verifiability

Revenue Recognition Principle

Recognition = recording
-happens when goods or services are provided to customers
-is recorded at the amount received

Expense Recognition Principle

A company records the expenses it incurred to generate revenue reported

Full disclosure principle

A company must report the details behind financial statements that would impact users’ decision. Often found in footnotes

Going Concern Assumption

Accounting info reflects a presumption that the business will continue operation instead of being closed or sold.
-implies business/property is reported at cost instead of, say, liquidation value that insists closure

Monetary Unit Assumption

We can express transactions & events in monetary units. Money being the common denominator in business

Time Period Assumption

 
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