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Helpful Websites about Forensic Accounting

What article or website would be helpful to anyone wanting to know more about forensic accounting? Explain what it is.

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There are several peer reviewed articles that anyone wanting to learn more about forensic accounting can read. For example, one can go to the database of the "Issues in Accounting Education" and "Management Accounting Quarterly" journals among few to search for such articles. One such article is the 'The Emergence of Forensic Accounting Programs in Higher Education' by Mike Seda and Bonita Peterson published in the Management Accounting Quarterly.

One of the foremost websites one can go to learn more about forensic accounting is www.forensicaccounting.com.

Simply, forensic accounting is the system where skills and tools from different fields including accounting, auditing and investigative are used to analyze accounting disputes.

ARTICLE

Fraud and Forensic Accounting in the Digital Environment
Pearson, Timothy A; Singleton, Tommie W. Issues in Accounting Education23. 4 (Nov 2008): 545-559.
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Fraud examination and forensic accounting are hot subjects in accounting today. The need to obtain, manage, and analyze digital data is critical for the success of future accounting professionals. Recent collaborations by colleagues in practice and in accounting higher education as described in "Education and Training in Fraud and Forensic Accounting: A Guide for Educational Institutions, Stakeholder Organizations, Faculty and Students" have created a framework for implementing changes in accounting education to better empower accounting graduates to be more effective in their roles to support anti-fraud efforts and perform forensic accounting in a digital environment. The true measure of an academic program is the impact it has on the knowledge level of its students. Many higher education accounting programs are considering incorporating fraud examination and forensic accounting content in their curricula. While this is a positive development, it is critically important that information technology content be embedded in the curriculum.

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Keywords: fraud; forensic accounting; white collar crime; financial crime; digital.

INTRODUCTION

Fraud examination and forensic accounting are hot subjects in accounting today. Clearly some of the key factors leading to a heightened sense for the need for additional attention to FFA education stem from: well-publicized financial scandals with devastating personal and professional outcomes, unique and not well-understood differences between financial audit and fraud audit methodologies, traditional accounting education, accreditation and certification, and the accelerating need for technology street smarts because of the increasing usage of information technologies (IT) in committing fraud and financial crimes and the technology tools needed to help in the fight to prevent and detect fraud and minimize the consequences. Technologies are also helpful in a range of forensic accounting services areas including valuation, shareholder disputes, and bankruptcies. The need to obtain, manage, and analyze digital data is critical for the success of future accounting professionals. Accounting education has traditionally included little forensic or fraud-related content, although the tangible impact of frauds arises from the accounting, finance, and IT side of the business enterprise. Unfortunately, it is also true that most frauds are perpetrated by people in positions of trust in the accounting, finance, and IT functions. Since traditional accounting education has provided very limited IT-related content, especially as related to fraud and forensic accounting, accounting educators have fallen out of step with the practicing business community in some respects by not adapting curriculum to match businesses increasing investment and reliance on IT. Recent collaborations by colleagues in practice and in accounting higher education as described in "Education and Training in Fraud and Forensic Accounting: A Guide for Educational Institutions, Stakeholder Organizations, Faculty and Students"1 have created a framework for implementing changes in accounting education to better empower accounting graduates to be more effective in their roles to support anti-fraud efforts and perform forensic accounting in a digital environment.

BACKGROUND

Major financial crimes and scandals, economic and technological innovation, and other societal factors have resulted in die need for accounting education to address fraud and forensic accounting in a digital environment

Financial Crimes and Scandals

Financial scandals have plagued our society since before the Industrial Revolution. During the last few decades, there have been numerous financial frauds and scandals, which were milestones with historical significance. For instance, in the 1970s, the Equity Funding Scandal was uncovered. This fraud is significant because it is one of the first major financial scandals where computers were used to assist in perpetrating a fraud. The CEO and otiier conspirators kept track of the phony insurance policies by assigning special codes to diem. There was a massive response to this fraud in the accounting and auditing profession in terms of standards, seminars, and articles on the subject of Electronic Data Processing (EDP) auditing (Singleton 1993).

The savings and loan (S&L) scandals of the early 1980s led to the creation of an investigative committee, the National Commission on Fraudulent Financial Reporting, commonly referred to as the Treadway Commission, and later known as the Committee of Sponsoring Organizations (COSO),2 a group of five professional organizations diat sponsored the efforts of the group in 1985. The Commission's objective was to develop some recommendations to mitigate diese kinds of scandals. Their conclusion focused on stronger internal controls, and COSO developed a model of internal controls. The model has become deeply embedded in the auditing profession: Statement on Auditing Standard (SAS) No. 78, Public Companies Accounting Oversight Board (PCAOB) Auditing Standard No. 5 (AS5, superseding AS2), SAS No. 109, and the COSO model's acceptance in general. One key reason this model is significant is because it is the result of frauds, it is seen as a way to stem diem, and it has become commonly accepted over the last two decades as a best practice in financial reporting. It is also significant because the fraud triangle (Cressey 1973) suggests tiiat die most effective activities to prevent or detect fraud should be focused on opportunity, which has strong ties to controls (Singleton et al. 2006).

Other frauds of significant interest include ZZZZ Best (1986), Phar-Mor (1992), Cendant (1998), Waste Management (1998), Sunbeam (2002), Parmalat (2003), along with a host of odiers. According to Accounting Scandals,3 the long list reached a critical mass in 2002 in the U.S.

Perhaps no financial frauds had a greater impact on accounting and auditing than Enron and WorldCom. These frauds led to the passage of the Sarbanes-Oxley Act in July 2002, and a new federal agency and financial standard-setting body, the Public Companies Accounting Oversight Board (PCAOB). It also was the impetus for the American Institute of Certified Public Accountants' (AICPA) adoption of SAS No. 99, Consideration of Fraud in a Financial Statement Audit. But it may be that the greatest impact of Enron and WorldCom was in the significant increased focus and awareness related to fraud (Singleton 2007b). There are more seminars, books, and journals on fraud than ever before, and more discussion of fraud and fraud-related activity in academe, politics, the auditor practitioner world, and business community in general.

What is very telling is the role technologies and digital data played in both perpetrating these frauds and in detecting the fraudulent activities. Hence, an understanding of digital tools and techniques seems to be necessary to avoid repeating these fraudulent acts.

Financial Audit and Fraud Audit as Alternate Fraud Detection Methodologies

While many changes in financial audit processes have stemmed from financial fraud or manipulations, history and related research repeatedly demonstrates that a financial audit simply cannot be relied upon to detect fraud at any significant level. The Association of Certified Fraud Examiners (ACFE) conducts research on fraud and provides a report on die results biennially, entitled Report to the Nation (RTTN). The statistics in these reports (ACFE 2002, 2004, 2006) consistently states that about 10-12 percent of all detected frauds are discovered by financial auditors (11.5 percent, 10.9 percent, and 12.0 percent, respectively). The KPMG Fraud Survey (KPMG 1994, 1998, 2003) consistently reports lower but substantively similar detection rates (5 percent, 4 percent, and 12 percent, respectively). The dismal reliability of financial audits to detect fraud can be explained very simply. They are not designed or executed to detect frauds. Statistically, one could infer that about 10 percent of all frauds are material,4 and because financial audit procedures are designed to detect material misstatements, then a 10 percent detection rate would be logical. Since a financial audit is limited in its scope and purpose, financial audits and fraud audits are necessarily fundamentally different approaches to an audit. This inherent difference creates the need to educate students on how each approaches fraud detection.

Very simply, students are taught that financial audits begin wim an assessment of the risk of material misstatement and, using prescribed standards, lead to audit procedures designed to identify potential material misstatements (Singleton 2007b). Students need training regarding a fraud audit approach that begins with a suspicion of a known fraud or fraud risk, and uses tools and techniques proven to be effective in screening and assessing the likelihood of fraud.

The necessary tools effective in assurance in financial statement audits will not be as effective for fraud prevention and detection. In other words, properly conducted financial audit procedures can be generally relied upon to detect significant material misstatements, including tiiose related to fraud, but cannot be relied upon to prevent or detect immaterial frauds. Nor can the procedures be relied on when controls are subject to immaterial (from the financial reporting perspective) management override or collusive manipulations. Despite this observation, many organizations still rely primarily upon financial audits and their auditors as their primary means to prevent and detect frauds of all sizes.

Generally speaking, accounting programs in higher education are built around me stated CPA exam content guidelines. NASBA and the numerous State Boards of Accountancy determine what constitutes the common body of knowledge necessary for persons entering the public accounting profession. The CPA profession drives the content of traditional accounting curriculum and naturally focuses on the financial statement audit and its related standards. While accounting education over the last half century has proven itself effective in preparing students to pass the CPA exam and perform the prescribed financial audit procedures, accounting education does not adequately prepare students for circumstances requiring fraud detection skills because financial audit procedures are not designed to be effective at detecting frauds.

The Role of Information Technology and the Digital Environment in Modern-Day Frauds

Accounting students need to be familiar with the role IT and the digital environment play. Knowledge and application of technology is increasingly essential in effective forensic accounting, anti-fraud programs, and fraud investigations. Students must be familiar ...

Solution Summary

The solution discusses helpful websites abut forensic accounting.

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