Which of the following actions would be considered an agency problem in the context of the fraud triangle?

• A. A company donates to charity as part of its corporate social responsibility program.
• B. A manager manipulates financial statements to increase their bonus.
• C. An employee follows company policy when recording transactions.
• D. A shareholder votes in favor of a proposed merger.

Answer: (B)

Verified step by step guidance

1. Understand the concept of the fraud triangle, which consists of three elements: opportunity, pressure (or incentive), and rationalization. These elements explain why individuals commit fraud.
2. Recognize that an agency problem arises when there is a conflict of interest between the goals of the principal (e.g., shareholders) and the agent (e.g., managers or employees). This often leads to actions that benefit the agent at the expense of the principal.
3. Analyze each option provided in the question to determine whether it aligns with the fraud triangle and represents an agency problem.
4. Option A: A company donating to charity as part of its corporate social responsibility program does not involve fraud or an agency problem, as it aligns with ethical business practices.
5. Option B: A manager manipulating financial statements to increase their bonus fits the fraud triangle (pressure to increase bonus, opportunity to manipulate statements, and rationalization of their actions) and represents an agency problem, as it benefits the manager at the expense of the company and shareholders.