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Forensic accounting and fraud examination pdf

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Describe the fraud examiner/financial forensic professional's approach to investigations. .. forensic accountant needs to think critically, the direction of the investigation is homeranking.info 6. Fraud This paper reviews the literature on fraud and forensic accounting. . From the perspective of a fraud examiner, forensic accounting is relation between. 1 Here, the term “forensic accounting” is a generic term which includes the narrower terms of “fraud examination” and “financial crime investigation.” 2 In this .


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Co-Authors: Jay J. Leiner, George R. Young Grounded firmly in real-world practice, Forensic Accounting provides the most comprehensive view of fraud investigation on the market. Where other books focus almost entirely on auditing and financial reporting, Hopwood, Young, and Leiner. PDF | This paper documents the rise of fraud examination and forensic accounting education and research in Africa, using Nigeria to mirror the. Program Content: Forensic Accounting and Fraud Investigation provides an 8 /2/D/%7B82DFF3FEA91BEDCA3C%7Dtipdf. 17 J.W.

A Survey of Accounting Educators. Fraud Auditing and Forensic Ac- 2 Given recent advances in the knowledge of human behaviour counting: Rezaee and Burtin found that forensic mining techniques. Efendi et al. Motivated by uments, or business transactions; 2 intentional misstatements, this concern, this review examines prior studies on forensic ac- omissions, or misrepresentation of events, transactions, accounts counting and draw implications for academic research and for or other significant information from which financial statements policy.

For the purpose of this review, forensic accounting involves the 2. Accounting standards allow managers to deceive or mislead users of published financial statements, es- to exercise discretion in financial reporting. An used to engage in, and to hide fraudulent practices.

Fraud pdf accounting and forensic examination

Hence, the extensive literature on fraud exists e. Apostolou et al, ; need for forensic accounting. Nonetheless, the quality of any fo- Rezaee, ; Ozkul and Pamukcu, , etc. Jointly, the litera- rensic activity would require the fraud expert or investigator to be ture show some consensus that fraud may involve: Motivated by uments, or business transactions; 2 intentional misstatements, this concern, this review examines prior studies on forensic ac- omissions, or misrepresentation of events, transactions, accounts counting and draw implications for academic research and for or other significant information from which financial statements policy.

However, little is known about whether transactions; 4 intentional omissions and disclosures or presenta- forensic accounting education has unintended consequences. The tion 5 the use of aggressive accounting techniques such as ille- literature is quiet on this issue. Thus, this review discusses this gitimate earnings management strategies; and 6 the manipulation concern as a gap in the recent literature.

Further, this review ad- of accounting practices under rule-based or principle-based ac- dresses a thought-provoking issue on whether all fraud cases counting standards that allow companies to hide the economic should be given equal investigative priority.

Just as medical doc- substance of their performance. Similarly, using this analogy, perpetrators within the firm. Some types of fraud are specific to it is easy to understand why regulators react differently to several some industries due to industry-related incentives e. Calavita et reported fraud cases. Finally, this review makes a contribution to al, For example, securities and investment fraud is common the forensic accounting literature. Other types of fraud are concentrated within top and middle management levels e.

This review is structured as follows. Section 2 and 3 discuss fraud Crumbley, ; Zahra et al, ; etc. Other type of fraud com- and forensic accounting. Section 4 reviews the literature on the mitted by employees include: Section 5 discuss- obtaining disbursements, creating ghost employees and receiving es some practical and policy issues.

Section 6 concludes. This is an open access article distributed under the Creative Commons Attribution License, which per- mits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Fraud involving accounting numbers Nonetheless, there is no agreement on the order or sequence of often manifest by directing manipulating accounting numbers used occurrence for each component of the fraud triangle. Therefore, to generate financial reports, for example, inventory overvaluation future research should attempt to establish a systematic and logical and improper capitalization of capital expense e.

Healy capabilities while at the same permitting inter-dependence among and Wahlen, , income smoothing Ahmed et al, ; Curcio each component of the fraud triangle. Fraud Polygon 2.

Fraud Motivations Several studies have made attempts to expand the fraud triangle. The perpetrator must have the capa- fraud.

There is evidence that the use of incentive systems increas- bility to commit the fraudulent act with some confidence that it es the likelihood to commit fraud among managers. For example, will go undetected. Also, Rezaee present an alternative to Johnson et al. Rezaee investigated factors that may increase the history.

Similar evidence was documented by Denis et al. Rezaee concluded, hood to commit fraud. Efendi et al. In covenants. Other evidence for incentive-related fraud include: Lie their analysis, they maintained the structure of the fraud triangle and Burns and Kedia In contrast, Erickson et al. After examining firms that were accused Following prior studies, there are prospects that future academic of fraud during the period, they found no association research and emerging sophisticated fraud cases in the near future between equity incentives and accounting fraud.

These conflicting would improve our understanding of fraud and, thus, expand the results seem to suggest that not all type of compensation system fraud triangle and fraud diamond further. This new dimension is motivate managers to commit fraud. Therefore, there is a need for the fraud polygon. The idea behind the fraud polygon is to estab- future research to identify specific incentives that motivate man- lish a systematic and logical sequence among newly emerging agers to engage in fraud and those incentives that de-motivate motivations to commit fraud while at the same permitting inter- managers to commit fraud.

Opportunities 3. There is a application of financial skills and investigative mentality to unre- consensus in the literature that the opportunity to commit fraud is solved issues, conducted within the context of the rules of evi- more likely when there are ineffective monitoring and control dence.

Forensic accounting involves the application of accounting systems e. Beasley, ; Albrecht and Albrecht, ; etc. Aroki- e. Beasley, ; Dechow et al. Follow- Raghunandan, ; Farber, , fewer audit committee meet- ing this definition, the focus of forensic accounting is to identify ings and fewer financial experts on the audit committee e. Ab- and review fraudulent transactions to identify the real intent of the bott et al.

Beasley finds that the perpetrator. Such review may take the form of document reviews, proportion of independent members on the board of directors is interviews, examination of electronic documents, etc. From the perspective of an attorney or a Rationalization is the third component of the fraud triangle. When litigator, forensic accounting involves gathering, interpreting, fraud perpetrators have some incentive and find an opportunity to summarizing and presenting complex financial issues in a clear, commit fraud, the perpetrator will seek explanations to justify succinct and factual manner often in a court of law as an expert their actions.

Some justification includes claiming that: Ozkul law and be presented in a manner that will be accepted by a court and Pamukcu, ; Overall, in the literature there is a consensus that there are some From the perspective of a fraud examiner, forensic accounting is relation between incentives, opportunities, and rationalization.

Davis et al undertook a survey involving respondents 4. Skills and Education of the Forensic Inves- from forensic professionals and fraud examiners to identify core tigator skills of a forensic accountant or investigator.

Their result was divided into three categories: Skills practitioners CPAs and attorneys; enhanced skills and profes- sional skills. According to Davis et al , the top five core In this section, I classify the skills of the forensic investigator into skills for the academics include: This categorization auditing skills, investigative ability, synthesis of results and think- is similar to Davis et al.

For example, Messmer identified strong analytical abilities, written and verbal communication skills, crea- tive mind-set and business acumen. Grippo and Ibex argue that the most important skills of forensic accountants come In Davis et al , the top enhanced skills for the forensic aca- from experience in accounting, auditing, taxation, business opera- demic, practitioner and attorney, include: Ramaswamy suggests skills such as: As shown in table, the relative im- Other studies such as Curtis and Digabriele observe portance of enhanced skills for each industry practice academia that academics and practitioners agree on the importance of a and practice differs according to the need of the practice.

Education Further, there are concerns that teaching the younger generation the techniques to detect fraud may not necessarily deter them from Prior studies show evidence that forensic accounting practice ap- fraud but could teach them how to commit fraud without leaving pears to be gaining importance within academic institutions e.

I argue that in- Rezaee et al. The study of institutions could witness the emergence of a new breed of orga- forensic accounting, as a branch of accounting, requires broad nized fraud perpetrators that do not leave traces of fraud because multi-disciplinary knowledge, particularly, in the knowledge of they know how to clean up the traces of fraud through their business activities, human behaviour psychology , working knowledge of fraud detection strategies taught in the university.

There appear to be some con- The difficulty that regulators or forensic expert face is to deal with sensus on the broad nature of forensic accounting e.

Enofe et al. To avoid this unintended A broad focus to forensic accounting among tertiary insti- consequence, a balance is needed between teaching students to tutions has some benefits to educational stakeholders. Specifically, detect fraud and how to de-motivate them from engaging in fraud- Buckhoff and Schrader argue that incorporating forensic ulent practices.

In response to this, it is tempting to advocate for accounting as a course of study in the accounting curriculum bene- the case that the skills of fraud detection should only be taught to fits three major stakeholders in accounting education-academic fraud investigators, potential forensic analyst and external auditors institutions, students and employers of accounting graduates.

Examination fraud accounting forensic pdf and

In a at professional institutions rather than equipping university stu- survey on the importance of forensic accounting among tertiary dents with skills of fraud detection.

Future research can be relied institutions, Peterson and Reider report that accounting upon to find ways to balance the need to educate the younger gen- instructors in universities acknowledge the importance of forensic eration on fraud detect strategies while at the same time ensuring accounting.

Groomer and Heinz investigated whether forensic related 5. Practical Issues: Research and Policy topics were taught in universities. They found evidence that fraud- related topics were taught in internal auditing courses.

Rezaee et al. Detecting Fraud: Academics vs Regulators forensic accounting. Hogan et al important for inclusion in the accounting curriculum. The presence of one or more fraud symptom is often perceived as evidence or signals In contrast, some studies document diverging views on whether indicating fraud, particularly, when supported with evidence from forensic accounting courses should be incorporated into the aca- sophisticated statistical models such as logistic regression, data demic curricula.

Rezaee and Burtin found that forensic mining techniques. While academic research continue to maintain accountants prefer to have forensic accounting as a stand-alone the symptom-based empirical statistical approach to detect fraud, course while academics prefer to integrate forensic accounting regulators, on the other hand, do not necessarily maintain this into existing accounting courses.

For this reason, highly debated and remains a fruitful area for future research. Implication dence of actual fraud. Such supplementary evidence may include interrogations, expert witness, interviews, etc.

Although there appear to be a weak consensus on the skill-set of the forensic investigator, the importance of each skill at a particu- 5. This means that the presence of quences of further broadening the scope of forensic accounting fraud symptoms does not necessarily imply that there is actual education among tertiary institutions. First, it leads to questions on fraud. The literature highlights some symptoms of fraud, for ex- whether forensic accounting students should cover a wide range of ample, Albrecht and Albrecht identified: Second, a broad focus to forensic account- behaviours, etc.

While there appear to be some consensus that ing education implies that in-depth forensic education is unlikely statistical models significantly improves the fraud detection pro- to be adequately covered during the yearly or termly syllabus cess, it is arguable that statistical-based fraud symptoms always within academic institutions either as a stand-alone course or as an lead to real fraud cases. In reality, it is unlikely that fraud symp- integrated course.

Thus, there is a need to define the core content toms indicates evidence of actual fraud.

Individuals who should focus on core auditing and financial reporting content of have a personal history of living extravagantly tend to maintain forensic accounting education while professional institutions that kind of lifestyle when they find themselves in top manage- should focus on the legal and investigative content of forensic ment. In this case, the existence of fraud may not be associated education, is highly critical because it is difficult to distinguish with extravagant lifestyle.

Only few studies raise this concern that between core and non-core areas of forensic accounting. Also, it fraud symptoms do not often lead to actual fraud cases e. Al- raises more questions such as: Notably, Albrecht excluded from the accounting curriculum? These issues remain a and Romney investigated some fraud symptom and ob- fruitful area of future research.

International Journal of Accounting and Economics Studies 67 5. Soft fraud may be defined as any fraudulent practice by a firm that is considered to be legitimate by industry standards and Investigation into every reported fraud case is costly to regulators practice or regulatory rules but is perceived as illegitimate out- investigators.

For this reason, it is unlikely that all reported fraud side the context of the industry. This kind of fraudulent practices cases will receive full and equal investigative priority. Also, if includes, but not limited to, accrual expense and revenue manipu- each case is considered for investigation, significant resources will lations, earnings management.

On the other hand, hard fraud is not be channelled proportionately to all fraud cases. There are any fraudulent practice by a firm that is considered to be illegiti- good reasons for this. First, investigating potential fraud cases mate within and outside the context of the industry. This kind of involve committing significant amount of resources into the inves- fraudulent practices includes, but not limited to, creating fictitious tigation with the aim to detect actual fraud.

This activity is reward- debtors, suppliers, etc. This type of fraud requires strict regulatory ing to investigators if the investigation leads to the identification disciplinary actions. In this case, the perpetrators firms would be penalized and fined which allows regulators investigators to 6.

Conclusion recover significant resources monetary equivalent committed into the investigation. On the other hand, when investigation does not lead to identifying real fraud cases, significant amount of in- In this review, we have examined several issues: This loss of resources committed to fraud, forensic accounting, core and enhanced skills of the foren- investigation affect the way regulators respond to fraud cases or sic investigators as well as issues with forensic education.

This events.

Examination fraud forensic pdf accounting and

However, merely holding oneself out as a forensic accountant lacks the symbolic capital necessary for a forensic 7 This is not to say that such misperceptions do not occur in the U. Huber a has clearly shown they do. However, it is more likely occur with citizens of other countries. Therefore, many have chosen to acquire the necessary symbolic capital by obtaining a degree or certificate in forensic accounting.

Forensic Accounting and Fraud Examination

There are approximately colleges or universities in the U. Education alone, however, may be insufficient establish one as a forensic accountant. Therefore, many have chosen either to supplement a degree with a certification, or to forego a degree and obtain only a certification. There are many who hold multiple certifications in forensic accounting Huber, b. The domains of the forensic accounting profession are both broader and deeper than the domain of public accounting profession, which by law is limited to auditing,8 although there are some obvious parallels and overlaps.

The certifications listed below are not listed in any particular order. However, as a profession public accounting refers only to the auditing of financial statements. A license is not required to engage in other services such as tax.

The organizations that issue forensic accounting certifications are corporations. NACVA also issues certifications in valuation which are not specifically focused on courts and evidence.

The examinations for the certification are based on textbooks. Examinations cover the following texts: The Certified Fraud Examiner CFE certification is focused only and entirely on all aspects of fraud — prevention, detection, and response. In the U. The domains of the Cr. FA include: There is at this time, no examination. The next section discusses the corporations that issue the certifications. The Forensic Accounting Industry Although Williams defines the forensic accounting industry in broader terms11, he traces the evolution of the industry and its institutionalization in its current form.

His analysis is limited to Canada, but it has parallels to that of the U. As with the profession, so with the industry. Forensic accounting corporations12 are not regulated under either Federal or state laws. No state imposes minimum qualifications for incorporators, officers, or directors, to form or operate a forensic accounting corporation.

The officers and directors of some of the corporations have neither education, nor experience, in forensic accounting or fraud examination. Furthermore, as discussed below, forensic accounting corporations may be either for-profit or not-for-profit.

As a rule, for-profit forensic accounting corporations do not disclose the fact that they are for-profit. There are at least six corporations in the U. Each of the corporations and their certifications are discussed below, and excerpted from Huber, , c, d, and a. The corporations are not listed in any particular order.

Forensic Accounting and Fraud Examination [PDF]

It issues several certifications in valuation in addition to the MFFA. The numbers of certificants is unknown. Private investigation is a licensed profession, and private investigators strongly lobbied their state legislators for laws prohibiting performing the functions or using the title. This has in some cases limited the ability of forensic accountants and fraud examiners from performing their duties. It was incorporated in Texas in as a for-profit corporation.

A second, not-for-profit corporation with the same name was incorporated in Texas in It issues the FCPA. The number of certificants is unknown. It is a group of for-profit corporations and one-not- for-profit corporation. The original for-profit corporation was incorporated in Missouri in It issues also forensic certifications in Survival Mindset, Nursing, and others. It previously issued certifications in Dentistry and Homeland Security, but those are no longer shown on its webstite. It issues the Cr.

The number of Cr. FAs is unknown. ACFEI, It was incorporated in Florida in as a for-profit corporation. It was recently acquired by BAR- BRI, a company that prepares bar review materials for those preparing to sit for the bar exam.

Its membership consists solely of, and is limited to, CPAs. Its origins date back to , prior to the first law was adopted licensing CPAs. It is incorporated in Washington, D. This is the only not-for-profit forensic accounting corporation. Discussion Each of the Big 4 firms, as well as hundreds of other firms, has dedicated divisions focused solely on forensic accounting.

With the annual revenue in the U. It also explains the hostility between the corporations Huber, b. Conclusion This paper has reviewed the legal, geographic, political, and economic background of the United States in order to establish the context of the forensic accounting profession and forensic accounting industry.

The purpose is to provide a greater understanding of the current state of the profession and industry compared to the state of the profession and industry in other countries.

The forensic accounting profession and forensic accounting industry are both well established in the U. However, due to the nature of the legal and economic systems, they are both unregulated, resulting in a high degree of variability with a corresponding misperception in the market with respect to the status and reputation of the various forensic accounting certifications and the corporations that issue them. The growth in forensic accounting revenue is greater than overall GDP growth.

There is thus an incentive for new entrants into the market which, absent regulation, can add to market misperception. The potential for misperception and confusion is greater for citizens of other countries who obtain U.

Although there are ancillary institutions, there has been relatively little research into the profession and industry. Available from http: Davis, C. CIA Factbook. Available from https: Drew, J. Private-investigator licensing emerges as potential threat to CPAs. Journal of Accountancy, March 5, Available from http: Fogarty, T. Reconsidering specialization in the accounting profession: A model for constructive recognition.

Journal of Theoretical Accounting Research, 5, Huber, W. A comparison of forensic accounting corporations in the U.

Journal of Accounting, Ethics and Public Policy, 12 3 , Is forensic accounting in the United States becoming a profession?

Forensic accountants, forensic accounting certifications, and due diligence. Should the forensic accounting profession be regulated?

Research in Accounting Regulation, 25 1 , Forensic accountants, codes of ethics and forensic accounting corporations. Journal of Forensic Studies in Accounting and Business, 5 1 , The structure of the public accounting industry — why existing market models fail.