Forensic Accounting Midterm - Free Report Example

Discuss what is meant by forensic accounting. What are some ways in which it differs as a specialty from general accounting or auditing? What are some of the specific functions and roles that forensic accountants perform? How does fraud investigation fit in as a sub-specialty?

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Forensic accounting is an area of specialty that investigates financial fraud and manipulation by providing detailed research and analysis of financial information.

Forensic accounting investigates financial irregularities such as embezzlements and frauds for use in a court of law, while general accounting and auditing compile financial reports to help the firm make decisions and inform the external stakeholders about the financial position and performance of the firm.

Forensic accountants prepare financial evidence and analysis reports against criminal activity for use in courts. They investigate financial records to detect fraud.

Fraud investigation fits in forensic accounting by involving both detective and accountancy skills to explore fraudulent activities in the firm’s financial records.

Discuss the fraud triangle. What are the individual components, and how do they work together? How does it play a part in fraud investigations? How can understanding it be used by organizations to discourage, help prevent, and discover fraud?

The fraud triangle is a framework designed to explain why an employee decides to commit fraud.

The fraud triangle involves three major components: a) Rationalization, which is the individual’s mindset that it is right to commit fraud. b) Pressure that makes an individual commit fraud, for example, gambling. c) Opportunity, which is the ability to commit fraud. These three components, when mixed, can cause huge losses for businesses of all levels.

It plays a part in fraud investigations by understanding how and why people commit fraud.

Understanding the fraud triangle will help create rules and regulations in the businesses by their owners or managers to discourage and prevent fraud.

Fraud can be discovered by; monitoring the accounts where frequent checking of the account activity should be done. Use online alert tools and services.

Why is internal control important to discourage, help prevent, and discover fraud? What are some elements of a good internal control system, and how do they work? What is meant by the concepts of “reasonable assurance” and “cost-benefit analysis” in the context of internal control?

Internal control establishes strict guidelines for monitoring operations; it ensures compliance with laws and regulations, protects assets, and improves the efficiency of operations.

Elements of an internal control system include monitoring, information and communication, control activities, risk assessment, and control environment. These elements work by forming the framework for compliance with laws and regulations, effective operations, and accurate financial reporting.

The concept of reasonable assurance implies that the cost of the internal control system should be less than the benefits derived from it. Besides, the cost-benefit analysis provides details of all costs and profits derived from the internal control system.

What is the responsibility of auditors to uncover fraud in an audit of financial statements? How has it changed pre-2002 (pre-Enron and the other related frauds) versus subsequent periods and the adoption of SAS99? How does it differ from a special-purpose audit of internal controls or fraud investigation?

The responsibility of auditors in uncovering fraud is to find out that the fraud misstates the financial statements and that the misstatement detected is material.

Pre-2002, the auditor’s responsibility was to detect non-compliance with the established internal control system. However, the Sarbanes-Oxley Act of 2002 made auditors responsible for presuming fraud based on misstatements in financial records. SAS number 99 described an auditing process involved in gathering information for identifying the risk of misstatement, assessing risks, and responding to results.

Special purpose audit entails auditing specific areas for a specific reason to specific users in comparison to regular audits.

Provide an overview of what is meant by IT Security Assessment. What is the overall objective, and how is it achieved and assessed?

IT Security Assessment is the study to identify risks and vulnerabilities in IT security. The overall objective of the IT Security Assessment is to control risks and prevent failures in security and compliance. It is achieved by following relevant procedures, including creating an assessment team, reviewing existing security policies, creating an IT assets database, understanding threats and vulnerabilities, estimating the impact, determining the likelihood of happening, and planning controls.

How can systems be designed to prevent and detect fraud? How can whistle-blower programs and hotlines be part of the process, and what is needed to maximize their effectiveness? What about other things like audits and system controls? What’s meant by the concept of “minimizing the total fraud cost equation?”

Systems can be designed to detect fraud by building profiles of potential frauds, testing transactional data, improving controls, and communicating monitoring activities throughout the organization. Whistle-blower programs can be made unanimous in enabling freedom of reporting without apprehension. Audits and system controls should be independent to enhance freedom in auditing activities for accurate results not influenced by the management. The total fraud cost equation refers to the total amount of money the organization incurs to recover from a fraud case.

Describe and discuss the Fraud Engagement Process. What are the steps, what do they involve, and why is each one important?

The fraud engagement process is a series of procedures for resolving fraud allegations starting from collecting evidence of fraud to reaching an agreement. The steps involve creating incident reports, conducting initial notifications, considering legal issues, and evaluating loss mitigation.