Question

In the Beazer Homes fraud case, what elements of the fraud triangle were present?

Answer 1

ANSWER:

In the Beazer Homes fraud case, the presence of opportunity, incentive, and rationalization which are elements of the fraud triangle drastically increased the probability of fraud. Beazer's Homes scheme reported net income by recording improper accounting reserves during specific periods between 2000 and 2005 for meeting or exceeding the expectations of analysts' for Beazer's diluted earnings per share (EPS) and maximize officer and senior employee yearly bonuses. Beazer was aware there was an:

(a) opportunity that they could make a big amount of money by revenue manipulation, and

(b) from that revenue, they were able to earn incentives which were reimbursed later.

(c) the incentives themselves made them rationalize as they wanted to believe that the incentives came from model houses that were sold properly.

Thus, Beazer violated objectivity, integrity, and professional due care in the code of professional conduct.