forensic auditing Flashcards
what is forensic accounting
Forensic accounting refers to the process of investigating a financial matter, including potentially acting as an expert witness if the fraud comes to trial
non fraud situations like monetary disputes in relation to business closure or matrimonal disputs regarding insurance claimspr
process of forensic accounting
-planning
-gathering evidence
-review
reporting
The purpose of the investigation, in the case of an alleged fraud, would be to discover if a fraud had actually taken place, to identify those involved, to quantify the monetary amount of the fraud (ie the financial loss suffered by the client), and to ultimately present findings to the client and potentially to court.
forensic auditing
Audit techniques are used to identify and to gather evidence to prove, for example, how long the fraud has been carried out, and how it was conducted and concealed by the perpetrators.
ways in which forensic auditing evidence can be useful for court case
-the suspect’s motive and opportunity to commit fraud
-whether the fraud involved collusion between several suspects
-any physical evidence at the scene of the crime or contained in documents
-comments made by the suspect during interviews and/or at the time of arrest
-attempts to destroy evidence.
three categories of fraud
corruption
asset misappropriation
financial statement fraud
3 types of corruption fraud
conflicts of interest: fruadster exerts their influence for personal gain which badly impacts company (not financial)
bribery is when money or something valuable is offered in order to influence a situation
extortion: opposite of bribery, money is demanded to secure an outcome
asset misappropriation
most common type of fraud
-cash theft
-fake disbursements to fictitious employees/suppliers
-inventory frauds: theft of inventory from the company
-misuse of assets: using for personal interest
Financial statement fraud
causes a material misstatement in the financial statements.
-manipulation of FS
-ommission of balances or incorrect acc treatment
accepting forensic audit work
-does the firm have necessary skills and experience
-specialist work
-detailed knowledge of fraud investigation techniques and legal framework
-training in interview and interrogation techniques and maiintenecne of safe custody of evidence
-
forensic investigation being requested by audit client
-self review
-advocacy
-management threats
to objecitivty
dont accept unless robust safeguards
fee of forensic audit
shud be high
specialist work
specialist staff
objectives of a fraud investigation
-identifying the type of fraud that has been operating, how long it has been operating for, and how the fraud has been concealed
-identifying the fraudster(s) involved
-quantifying the financial loss suffered by the client
-gathering evidence to be used in court proceedings
-providing advice to prevent the reoccurrence of the fraud.
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.
gatheric evidence in forensic investigation
-team shud be skilled in collecting evidence that can be used in court case
ways to gather evidence:
-testing controls to identify weaknesses
-analytical procedures to compare trends
-CAAT
-discussions and interviews with employees
-substantive techniques like cash count, recons, reviews of documents
ultimate goal
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 of forensic investigation
report will include
-findings
-summary of evidence
-conclusion of amount of loss suffered
also
how fraud scheme was set up
which controls abused
improvements recommendation
