Role of Forensic Accountant - Coursework Example

? Research Paper: Forensic Accounting of the of the Significant Skills possessed by Forensic Accountants Forensic accounting can be defined as the comprehensive view of the fraud investigation. It prevents fraud and analyzes antifraud controls. It includes auditing of the accounting records in “search for evidence of fraud” (Hochberg, 2006). A fraud investigation is executed “to prove or disprove a fraud” (Hochberg, 2006) which is the part of forensic accounting. The aim of forensic accounting is to submit report to the court or the management of the company. Litigation support and expert witness are the part of forensic accounting. Forensic accounting is carried out by the forensic accountants. The following are the 5 skills that are needed for a forensic accountant to be proficient in his work: 1) Good decision maker: The forensic accountant seeks for evidence for the suspicion of fraud that is surfaced through an allegation or complaint. Thus they have to be strong in taking decisions in order to judge whether the allegation or the complaints are true or not. They have to do the preliminary investigation of the fraud or the complaint so they have to gather all the information about the fraud and thus at last make a decision. The decision should not be biased. They should possess the ability to audit the financial statements regularly with proficiencies and investigate those situations that can lead to severe fraud. The financial statements that are prepared by the chartered accountants or the accountants of any company are examined minutely by them so that no fraudulent statement is made to the management that can later lead to problems for both of them (Hyman, 2001). 2) Proficient with the investigation rules and procedures: They are experienced accountants, auditors or the investigators of the financial and legal documents. Thus they are quite proficient with the rules and regulations of the investigation and assist the lawyers and the legal team in their work. They have proficiency in the latest accounting standards and the procedures that are used in the Financial Reporting Systems. They are assigned to give recommendations that will make the internal controls strong and efficient for the working of any business. As an investigator they should seek for evidences that can be provided in the court of law and they should have the ability to investigate the tips of fraud and allegations. They should possess the quality to sort, compare and analyze the data that are to be investigated. They should keep good relation with the prosecuting and investigating agencies that are involved in the case (Hyman, 2001). 3) Can make efficient judgment: They are hired to look into the fraudulent activities within the company. They should possess the quality of making any right judgment on behalf of the company. They should not make any biased judgment as that can lead to their termination if proved guilty. It can also create problem for the accountants who are responsible for the financial reporting. They work closely as law enforcement teams with the lawyers. During any investigation they often act as expert witnesses in the trials at courts. Thus they have to make the right statement in the court so that the company as well as the people concerned with the investigation does not feel deceive (Hyman, 2001). 4) Excellent knowledge about the State and the Federal laws: They should have an understanding about the different monetary units that are used internationally for the different types of foreign accounts so that they can make an evaluation when needed. They also play the role of attorney so they must have good knowledge about the recent Federal and State laws and regulations so that they can approve or disapprove severe fraud (Hyman, 2001). 5) Good communicator: They should also possess good communication skills so that they are understandable to every individual who do not have any knowledge of accounting standards and the laws (Hyman, 2001). Role of Forensic Accountant Practioners and the researchers have agreed the importance of the forensic accountants’ in understanding the importance of fraud diamond which included the areas like incentive, opportunity and rationalization. They indentified the fact that the forensic accountants should be familiar with the four sided fraud diamond which can be identified as the individual capability. The researchers pointed out that the fraud examiners i.e. the forensic accountants should not undervalue the fraud performer and neglect the loopholes which are created by them. The fraud performers by creating loopholes take the advantage of the weak internal control system. Thus the forensic accountants should be very smart to identify the loopholes created by the fraud performer and take the necessary actions to rectify them so that it does not harm the business and its reputation. The forensic accountants should have thorough knowledge about the Accounting Information System (AIS) when they are investigating fraud. They play an important role of removing the red flags from the financial accounts of the company and thus help in making an efficient internal system. They are well trained in the areas of detection, investigation and also in various auditing techniques. Thus they play the role of the investigator and also an auditor to a company (Dogame, 2009). They are well equipped with the skills of demonstrating the rules that are required in the analytics and the investigation purpose. Thus they even guide their juniors and impart their knowledge to them. It shows that they have good grip on the financial accounting as well as auditing of the statements. Researcher has indicated the fact that the juniors face difficulty in statistical data testimony in the trials and thus confront problem for miscalculation. Their anxiety for dealing with the numbers and also their limited understanding about the testimony leads to misapplication of data and failure in application of AIS. The senior forensic accountants assist their junior assistant and try to make them understand where they are making mistake by regularly scrutinizing their data interpretation. The court has pointed out that the expert’s evaluation and the evaluation of the junior assistant are not the same and thus there appears confusion in the testimony which can be challenged and even discarded. Thus the court suggested to the junior forensic accountant to follow a definite methodology so that they do not confront these problems. These methodologies are formulated by the senior forensic accountants (Dogame, 2009). The forensic accountants have the ability to elucidate to anyone who does not even possess any knowledge about the accounting standards and financial accounting, thus they are excellent in communication skills. Other than being a good communicator the forensic accountant also plays the role of asking the right questions during the interview of the fraud investigations so that they can examine whether the interviewee is well versed with the AIS. The researchers identified the point that the forensic accountants make the documents so efficiently that it bears all the information about the fraud and are understandable to anybody who reads it. If the documents do not identify the initial fraud then they translate the documentary facts in simple words. They are required to give evidences for the statement they make against the investigations and justify them before the management and the court (Dogame, 2009). The common accounting fraud areas which the forensic accountants have figured out are given in the table below: Accounting Items Possible Fraud Scenarios Reserves a) Incorrect estimates b) One time charges Revenue Recognition a) Premature recognition of sales b) Sales that have not occurred c) Improper use of the transactions Inventory a) Non-existent inventory b) Over valuation of the inventory Expenses a) Improper documentation of expenses b) Delayed expense recognition Others a) Improper documentation of party transactions b) Fraudulent acquisition accounting. Legal Responsibilities of Forensic Accountants Forensic accountants act as the backbone of the company when there are serious fraudulent activities in the accounts of the company. In industry, it is seen that often there arises serious disputes between the businesses. The issues are solved easily in some cases whereas in the remaining cases it is necessary to manage the dispute arising by the use of legal channels. In those cases legal advices from the forensic accountants are essential. Litigation support is one of the most important reasons for hiring a forensic accountant in a company. The support varies from one to another and the responsibility of the forensic accountant becomes more important as the cases become complicated (Dogame, 2009). The assistance of the forensic accountants is needed even during the research or during the documentation of the legal facts. These may also indicate the extent to which the legal system has been disputed by the fraud makers. They also give critical support in initial stage of the legal clash by holding reviews of the statements to have an initial evaluation of case or by helping in discovery of the proceedings by formulating important questions regarding the financial proofs. Litigation support is a vital tool during a dispute in attaining desired results. The following are the support that is provided by the forensic accountants: 1) Helping to secure documentation that are required for supporting or disprove a claim. 2) They review the documents that are provided in the preliminary appraisal of case and they are responsible for identifying the potential areas where the company has faced with loss and thus recovery is needed (Dogame, 2009). 3) They assist in the discovery and examination process which includes the formulation of the important questions with regard to the financial evidences. 4) They engage themselves in examining the process of reviewing the testimony and assist in understanding the financial problems and thus formulate additional questions to the counsel. 5) They have the authority to review the opponent expert’s report to seek for the strength, weakness and the damages of the position that are taken. 6) As they form the backbone of the company in times of disputes thus they assist in negotiating in the meetings of the management. 7) They attend trials to listen to the testimony of the opponent’s expert and assist in cross examining the facts that are highlighted by the opponent’s expert (Bressler, n.d.). Cases Where Forensic Accountants have Detected Fraud The two cases are the following where the forensic accountants have found evidences of fraud: 1) U.S. Foodservice an acquired organization by the Dutch Company was the second largest distributor of food materials to hotels, restaurants, schools and Ahold’s chain of US groceries. A major portion of the U.S. Foodservices balance sheet contained the promotional allowances receivable from the vendors. During the audit procedure of U.S. Foodservices in 2002, the auditor of Ahold sent the confirmation for the receivables of the rebates. The confirmation was sent to the salesperson of the vendor. These confirmations are later checked in the audit of 2003 where the opinions of the auditors clashed regarding the rebates and they discarded the audit of 2002. Ahold declared that the rebates were not been equal to all the vendors but U.S. Foodservices’s balance sheet showed different pictures. Thus the forensic accountants found out that there has been fraudulent in the documentation of these rebates with each of the vendors. U.S. Foodservices faced with investigations and they recorded that for the past three years they have conducting the same business and giving different rebates to different vendors but showing the same amount of rebate in the financial statements (Sanchez & Agoglia, 2011). 2) In 2005, Illinois State Lottery awarded a $100 million dollar contract to an advertising firm. In the first year of the contract the Illinois State Auditor General announced a legislative report of audit to the Illinois general assembly and the public that included the fact that the Lottery contract has gone missing and unaccounted for the vendors. The report was further forwarded to the Illinois Inspector General who conducted an investigation and concluded that the firm should be criminally prosecuted. The firm facing the fraud case appointed forensic accountant to investigate the accounts. The accountants after 90 days of rigorous investigation came up with the fact that there have been loopholes in the contract which enabled the executives to flow in dollars in their own accounts (Holland, 2003). References Bressler, L. (n.d.). The role of forensic accounts in fraud investigations: Importance of attorney and judge’s perceptions. Journal of Finance and Accounting, 11027, 1-9. Dogame, A. (2009). The 419 code as business unusual: Youth and the unfolding of the advance fee fraud online discourse. Asian Journal of Social Science, 37(4), 551-573. Hochberg, N.E. (2006). When accounting practices go under the microscope. Financial Executive, 22(1), 53-56. Holland, W. (2003). A case of fraud vindication: How can a forensic auditor prevent a miscarriage in justice. Retrieved from http://aaahq.org/fia/MeetingPapers/2012/11-031-TEACHCASE12.pdf Hyman, D.A. (2001). The Regulation of managed care organizations and the doctor-patient relationship. The Journal of Legal Studies, 30(2), 531-567. Sanchez, M., & Agoglia, C. (2011). U.S. Foodservice: A case study in fraud and forensic accounting. Journal of Forensic & Investigative Accounting, 3(3), 238-246. Read More