Forensic Accounting and Your Organization 1
Running Head: FORENSIC ACCOUNTING: WHAT IT CAN DO FOR YOUR ORGANIZATION
Forensic Accounting: What It Can Do For Your Organization
Kira Bailey
Dr. Harper
BUS 520
Strayer University
Charleston, SC
Forensic Accounting and Your Organization 2
ABSTRACT
Forensic accounting is the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of the rules of evidence. Organizations hire forensic accountants for guidance when evaluating potential business transactions to look for suspicious signs of accounting activity, provide expertise during litigations, look for signs of suspicious activity and fraud by
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If a dispute is brought to the courts notice, the forensic accountant can testify as a witness. The world of forensic accounting involves grasping the seriousness of a situation and looking beyond numbers. It is more than just your regular accounting or basic detective work. Because it has such unique elements, it is an unusual combination that has been and will always be in demand. The forensic market has seen a great deal of activity in recent years and is set to continue in the future. The growth of regulatory compliance requirements and the increase in fraud has seen a related growth in demand for forensic accountants and forensic technologists both within and outside the profession. Research confirms that preventing fraud and revealing deceptive accounting practices are in strong demand. Forensic accounting procedures to detect financial
Forensic Accounting and Your Organization 5
reporting fraud should be increased. Fraud costs companies in the United States $652 billion dollars annually. Fraud is a widespread problem that affects every organization regardless of size, location or industry. There has been an 80% increase in FBI corporate fraud cases since 2003 (US Department of Justice, 2008) and a 26% increase in U.S. identity theft convictions since 2007 (Identity Theft Task Report, 2008). Audit teams need to be trained to incorporate more forensic accounting procedures into their audit practices and retain more forensic
With different industry definitions and viewpoints, fraud can be a tough issue for audit committee members to grasp for oversight purposes. The legal obligations of audit committee members have intensified because their standard duty of care and loyalty to the entity has increased in light of management fraud activities.
Professional auditing standards discuss the three key “conditions” that are typically present when a financial fraud occurs and identify a lengthy list of “fraud risk factors.”
| (TCO A) An AICPA committee in 1986 broke forensic accounting into two broad areas:
The Sarbanes-Oxley Act of 2002 (SOX), also known as the Public Company Accounting Reform and Investor Protection Act and the Auditing Accountability and Responsibility Act, was signed into law on July 30, 2002, by President George W. Bush as a direct response to the corporate financial scandals of Enron, WorldCom, and Tyco International (Arens & Elders, 2006; King & Case, 2014;Rezaee & Crumbley, 2007). Fraudulent financial activities and substantial audit failures like those of Arthur Andersen and Ernst and Young had destroyed public trust and investor confidence in the accounting profession. The debilitating consequences of these perpetrators and their crimes summoned a massive effort by the government and the accounting profession to fight all forms of corruption through regulatory, legal, auditing, and accounting changes.
These businesses realize that maintaining the public’s trust is one of the keys to commercial success, so they employ investigative accountants to strategically manage the complexities of risks and threats. Investigative accountants scrutinize fraudulent activities, assist senior management with risk management and strive to mitigate potential vulnerabilities. Investigate accountants often respond to fraud allegations and reported financial irregularities. They adopt a strategic threat management approach that enables them to anticipate and respond to risks. They apply advanced technology approaches to help internal customers track and manage data activities. They employ information management principles, data analytics techniques and sophisticated technology tools to help management make well-informed
As laws and regulations continue to grow and become more complex, the need for forensic accountants is sure to continue growing as well. An example of how regulations have grown (mirroring the demand for forensic accountants) can be seen by comparing the scope and length of the Sarbanes-Oxley Act of 2002, at 66 pages, to the 849 page Dodd-Frank Wall Street Reform and Consumer Protection act of 2009.(Tucker, 2011) It is the environment created by such complex regulations and oversight committees that has hedged the need for accounting experts who can help demonstrate both the effects of individual companies on overall markets, as well as the opposite effects of market-happenings on individual firms. This complicated data, made comprehendible by a talented and effective forensic accountant, can serve as the determining factor in a case. Ultimately, this allows for
Forensic science borrows from a number of sciences which include: physics, Biology and chemistry. It therefore involves examination of a wide spectrum as compared to any other method of investigation. Due to the wide spectrum of investigation and evidence analysis the method offers; it ensures that the results are accurate and can be used in the court of law to make a decision. The method establishes the existence of a crime, the connection between the crimes and the
Forensic accountants also should consider that confidential sources of information may have a hidden motive for providing information. Former spouses, business partners, employees, neighbours, and friends may know specific details. However, the reasons for providing such information may be suspect. The confidential source may be providing information that is intended to discredit or embarrass the target. A forensic accountant should weigh the benefits of relying on the evidence against the risk of potential damage to the case if the information proves false. To the extent possible, information received from confidential sources should be corroborated through independent investigation.
Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills,
Forensic accounting is the use of investigative and analytical skills for the purpose of resolving financial issues in a court of law. Forensic accountants need skills in accounting, auditing, finance, quantitative methods, certain areas of laws, research and investigative skills to collect, analyze and
Forensic accounting is the area of the accountancy area which describes engagements that result from
While accounting has always been widely practiced, forensic accounting is a relatively new field. Forensic accounting is the use of accounting to extract information from financial documents to prove fraud or embezzlement in the court of law. It involves identifying, recording, and extracting financial data while using a variety of direct and indirect analysis methods. In recent years, the profession has gained attention for its role in stopping both terrorists and corporations from acting unethically. After 9/11 the FBI and Department of Justice created the Terrorism Financing Operations Section which was composed of forensic accountants to conduct a thorough analysis of the financial support structure of the 9/11 hijackers
The sampling tools and techniques used in this investigation consists systematic random selection of data from selected sources. The forensic accountant use computer forensics, data analytics and interviews to allow them to assemble much of the required evidence for an investigation. This abuse was detected when we see the invoice of heavy amount paid by end of the last year without any inspection report or repair completion document in file. The further investigation showed it was done later this year. No employee took any funds to commit financial fraud or larceny but the financial statement were misleading to the users of those statements. A company may experience such type of abuse or corruption schemes developed at any given time, more than one area or all over the company. Corruption can be performed by fraudster employees who intentionally and wrongfully use their influence to gain personal financial gain from company business transaction. It can be limited to a particular department or it may exist in all structural levels.
Forensic accounting is “ an accounting analysis that is suitable to the court, which will form the basis for discussion, debate and
Forensic accounting covers two broad areas: litigation support and investigative accounting. The AICPA describes litigation service as "any professional assistance non-lawyers provide to lawyers in the litigation process." Forensic science may be defined as the application of the laws of nature to the laws of man. Forensic accounting is accounting that is suitable for legal review, offering the highest level of assurance, and is of a scientific nature. Forensic accounting should be sufficiently thorough and complete so that an accountant, in his/her considered independent