The Importance Of The Classical Fraud Theory

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Recommended: Positive impact of corporate social responsibility

In today’s society, corporations are expected to be socially responsible. Drucker (1981) stated that this is a growing trend or chic for businesses to conduct in an ethical manner. These organizations are socially responsible if they partake in performing duties that will benefit the humanity. Any unethical mistake can tarnish the company’s reputation. The audience associates the reputation in making various choices, such as investment, career, and relation. The major issues that have resulted to the downfall of corporations and financial institutions include fraud, suspicious business valuation, money laundering, post-acquisition disputes and corporate economic damage caused by the breach of contracts and torts (Silverstone & Sheetz, 2012). …show more content…

Through Albrecht, Holland, Malagueño, Dolan, and Tzafrir’s (2015) study, there are five reasons for manipulating a financial statement. These five reasons include a desire for a reward or benefit, fear of punishment, personal knowledge, obedience to authority, and personal relationship needs. Albrecht et al.’s (2015) five reasons, based upon the Classical Fraud Theory, involves three elements: opportunity, threat, and rationalization. Due to one of these elements, people may make unethical decisions. Though through habitual rituals, people may overlook the wrongfulness and …show more content…

Due to the person’s misinformation, an error can arise, since the person unintentionally caused the problem. If the person intentionally misinformed the event, a fraudulent event may occur (Reid & MacQueen, 2013). Wells (2002) identify three types of occupational fraud that occur in organizations: asset misappropriations, corruption, and fraudulent statements. Even though asset misappropriations commonly happen in organizations, these types of fraudulent activities classified as the least expensive. Meanwhile, fraudulent statements do not happen as much as the other types of fraud; however, fraudulent statements classified as the most

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