Forensic Accounting and Fraud Examination (Irwin Accounting)

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.

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.

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. Research and Policy topics were taught in universities. They found evidence that fraud- related topics were taught in internal auditing courses.

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.

The cost associated with fraud investigation deters regula- review discussed some practical and policy issues. In conclusion, tors from giving every reported fraud case equal investigative it is important to note that while forensic accounting is gaining priority. On the other hand, academics stress that each reported significant research interests among academics, progress in foren- fraud case should be taken seriously. This is unlikely to be the sic accounting research will continue will depend on the extent to case in reality in reality because just as medical doctors do not which fraud perpetrators leave traces.

This is because fraud perpe- consider all illnesses to be life-threatening and thus do not commit trators do leave traces after performing the act.

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However, in the significant resources to this category of illness, it is easy to under- coming years, regulators will be more concerned about fraud per- stand why regulators react differently to some reported fraud cases. This will pose a Therefore, the cost and benefit of fraud investigation provides problem for regulators if perpetrators have thorough knowledge of another explanation for the diverging views between an academic accounting standards, auditing techniques and investigative skills.

This knowledge will help perpetrators to eliminate a possible trace of fraud. This will remain a supervisory and policy issue in the coming years. Finally, the progress in the forensic accounting 5. Research and Policy Gap: Forensic accounting research should play an important role to inform practice audit and policy. The future of forensic account- References ing research will depend on its ability to inform policy. However, forensic academic research has done little to inform policy and [1] Albrecht, W.

Fraud Examination and supervisory rules for the following reasons. The knowledge that firms validation, Advances in Accounting, 3, The Relative Importance of Sas No. Behavioral Research in Accounting, This practice in forensic research http: Regulators, on the other [4] Arokiasamy, L. Interna- in firms while academic research focuses on past fraud events. An Empirical Analysis of the Relation between research shifts their focus from firms with previous fraud his- Board of Director Composition and Financial Statement Fraud.

The Accounting Review, Fraud Auditing and Forensic Ac- 2 Given recent advances in the knowledge of human behaviour counting: New Tools and Technique. The Teaching of Forensic cases, particularly, when investigation fraud cases require the Accounting. Journal of Forensic Accounting, 1 1 , Journal of Financial Economics 79 1: A Policy Note [10] Crumbley, D. E and Smith, G. The rationale for this [11] Curtis, G.

Legal and Regulatory Environments and Ethics: Issues in Accounting Education, 23 4: Causes and Con- significant costs and other resources. I propose that a classification sequences of Earnings Manipulation: An Analysis of Firms subject To of fraud based on i the magnitude of misrepresented transactions; Enforcement Actions by the Sec.

Contemporary Accounting Research, ii the materiality of the accounting number involved; iii the 13 spring: Characteristics and Skills the perpetrator - individual or firm; and v whether such practices of the Forensic Accountant. American Institute of Certified Public are acceptable within the acceptable industry standards, should Accountants. Is there a dark side to [42] Rezaee, Z. Causes, consequences, and deterence of financial incentive compensation? Journal of Corporate Finance, 12 3: Critical Perspectives on Accounting, 16 3 , An empirical investigation of the relevant Insights from Academicians and Certified Fraud Examiner Practition- skills of forensic accountants.

Journal of Education for Business, 83 ers.

Forensic Accounting And Fraud Examination (Irwin Accounting) Download Pdf

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