THE INSIDE TRACK: SPECIALIZED KNOWLEDGE
The "fraud triangle" is a popular heuristic which states that there are three necessary conditions for fraud to occur; namely, pressure, opportunity, and rationalization (sometimes referred to as attitude). More recently, however, CPAs have been advised to also consider "some level of specialized knowledge" possessed by executive management which managers "perceive as providing them with some exploitable advantage." While closely related to opportunity, "specialized knowledge" is not the same. Opportunity relates to some measure of organizational trust transferred to the individual through the limits of structural controls (e.g., access - albeit not necessarily priviledge). Specialized knowledge, on the other hand, relates to understandings of the transformation of economic value and related systematic processes. Perpetrators perceive that they possess some knowledge that provides them with a "unique" ability to exploit the limits of structural controls, or that may make structural controls irrelevant. Only a combination of opportunity and specialized knowledge allows perpetrators to believe they may violate organizational trust without discovery (e.g., "they won't get caught") or that they may avoid the consequences of discovery (e.g., "they will avoid the penalty").
-- Adapted from the Letter from the Publisher:
Audit Committees: The Last Best Hope Journal of Forensic Accounting, June 2004 (where the clarification first appeared).
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