Subject Forensic AccountngAs we move forward, and computer te.pdf
- 1. Subject " Forensic Accountng" As we move forward, and computer technology improves, we will have the ability to utilize programs to look for "red flags" or anomalies within a companies books. The other side of this coin is that this technology can also be utilized to conduct fraudulent operations, and an article in Accounting today even suggests that this will be the direction that fraud goes in 2015. If a company is suspected of fraud, or a whistleblower comes to the SEC with information fraud examiners will get to work! HOW an auditor investigate it. Solution Fraud has become very complicated in this era of technology, and increasingly difficult to detect, especially when it is collusive in nature and committed by top management who are capable of concealing it. Over the last two decades, there have been developments concerning fraud which some have seen as marking significant extension to audit responsibilities. The business community, especially the accounting profession, has become increasingly concerned about the rise in management fraud. Recent internal reports suggest that employee fraud is pervasive, plaguing both large and small organization alike. If a company is suspected of fraud or a whistle blower comes to SEC,an auditor has to conduct thorough investigation to get the root of the fraud and carry out necessary actions accordingly. First,we will take a look at various types of frauds that can prevail and different investigation procedures. TYPES OF INVESTIGATION The forensic accountant could be asked to investigate many different types of fraud. It is useful to categorise these types into three groups to provide an overview of the wide range of investigations that could be carried out. The three categories of frauds are corruption, asset misappropriation and financial statement fraud. Corruption There are three types of corruption fraud: conflicts of interest, bribery, and extortion. Research shows that corruption is involved in around one third of all frauds. Asset misappropriation By far the most common frauds are those involving asset misappropriation, and there are many different types of fraud which fall into this category. The common feature is the theft of cash or
- 2. other assets from the company, for example: Financial statement fraud This is also known as fraudulent financial reporting, and is a type of fraud that causes a material misstatement in the financial statements. It can include deliberate falsification of accounting records; omission of transactions, balances or disclosures from the financial statements; or the misapplication of financial reporting standards. This is often carried out with the intention of presenting the financial statements with a particular bias, for example concealing liabilities in order to improve any analysis of liquidity and gearing. CONDUCTING AN INVESTIGATION The process of conducting a forensic investigation is, in many ways, similar to the process of conducting an audit, but with some additional considerations. The various stages are briefly described below. Accepting the investigation The forensic accountant must initially consider whether their firm has the necessary skills and experience to accept the work. Forensic investigations are specialist in nature, and the work requires detailed knowledge of fraud investigation techniques and the legal framework. Investigators must also have received training in interview and interrogation techniques, and in how to maintain the safe custody of evidence gathered. Additional considerations include whether or not the investigation is being requested by an audit client. If it is, this poses extra ethical questions, as the investigating firm would be potentially exposed to self-review, advocacy and management threats to objectivity. Unless robust safeguards are put in place, the firm should not provide audit and forensic investigation services to the same client. Commercial considerations are also important, and a high fee level should be negotiated to compensate for the specialist nature of the work, and the likely involvement of senior and experienced members of the firm in the investigation. Planning the investigation The investigating team must carefully consider what they have been asked to achieve and plan their work accordingly. The objectives of the investigation will include: The investigators should also consider the best way to gather evidence – the use of computer assisted audit techniques, for example, is very common in fraud investigations. Gathering evidence
- 3. In order to gather detailed evidence, the investigator must understand the specific type of fraud that has been carried out, and how the fraud has been committed. Evidence can be gathered using various techniques, such as: The ultimate goal of the forensic investigation team is to obtain a confession by the fraudster, if a fraud did actually occur. For this reason, the investigators are likely to avoid deliberately confronting the alleged fraudster(s) until they have gathered sufficient evidence to extract a confession. The interview with the suspect is a crucial part of evidence gathered during the investigation. Reporting The client will expect a report containing the findings of the investigation, including a summary of evidence and a conclusion as to the amount of loss suffered as a result of the fraud. The report will also discuss how the fraudster set up the fraud scheme, and which controls, if any, were circumvented. Court proceedings The investigation is likely to lead to legal proceedings against the suspect, and members of the investigative team will probably be involved in any resultant court case. The evidence gathered during the investigation will be presented at court, and team members may be called to court to describe the evidence they have gathered and to explain how the suspect was identified. It is imperative that the members of the investigative team called to court can present their evidence clearly and professionally, as they may have to simplify complex accounting issues so that non- accountants involved in the court case can understand the evidence and its implications. CONCLUSION In summary, investigating a fraud especially involving technology is a very specialist type of engagement, which requires highly skilled team members who have experience not only of accounting and auditing techniques, but also of the relevant legal framework.