Forensic-MT - Essay Example

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Forensic Accounting is relatively newer branch of Accounting and is defined in a generic manner as a discipline ‘where auditing, accounting and investigative skills are used to assist in disputes involving financial issues and data and where there is a suspicion or allegation…
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Running Head: Forensic – MT Forensic – MT Forensic – MT Forensic Accounting is relatively newer branch of Accounting and is defined in a generic manner as a discipline ‘where auditing, accounting and investigative skills are used to assist in disputes involving financial issues and data and where there is a suspicion or allegation of fraud’ (Hopwood, Leiner & Young, 2008). The current paper will provide details regarding the background to forensic accounting and its implication in the legal environment and its impact on businesses and information systems and overall audit functionality. Finally the Sarbanes Oxley Act 2002 and standard set out by its governing board PCAOB are examined for making ground for forensic accounting.
As the U.S. corporate sector reporting is plagued with continuum of frauds and deliberate accounting errors and manipulation and most of these cases are pending in the courts for due decisions. The need for forensic accounting becomes undoubtedly at its peak as accountants and lawyers seek supportive evidence which is rather factual rather than opinion based. The legal proceedings have become lengthy and complex as businesses and transactions are becoming complicated with too much information in terms of the ways they are carried out and information related to them is dispersed and difficult to gather. Forensic accountants or lawyers need to be competent and knowledgeable to identify weaknesses in the reporting system and prepare the factual documentation regarding an issue or a transaction which is being challenged in the court.
The role of companies audit committees and external auditors are challenged by plaintiffs including regulatory bodies, stakeholders, creditors and general public in fraud cases. The outcome of this severe criticism was the introduction of the SOX 2002. The SOX requires auditors to carry out their audit engagement responsibilities in accordance to the ‘auditing and related professional standards’ laid out by PCAOB (PCAOB, 2004).
Companies hire forensic accountants not only to provide litigation support but also to help them in managing their internal reporting. Auditors are now required to audit management’s assertion on the effective of internal controls over financial reporting (PCAOB, 2007). Information systems are integral part of internal reporting and data should be made accessible to auditors who need to carryout tests to assure the effectiveness of the system and completeness of information managed and generated. Additionally, auditors should acquire written confirmation representation of control tests and their outcome from the management as evidence (PCAOB, 2007).
From this it could be derived that audit documentation is very important which is the ‘written record of the basis for the auditors conclusions that provides the support for the auditors representations, whether those representations are contained in the auditors report or otherwise’ (PCAOB, 2008). These documents could later be referred to by forensic accountants to suggest any material misstatement or any other issues which could be contagious in the company’s reporting. Thus, the role of auditor to identify any continuation of material misstatements and weaknesses set by PCAOB’s Auditing Standard no. 4 is crucially important which could actually help in tracing back evidence required by forensic accounting.
In various cases top management are blamed for manipulating with corporate accounts by changing the accounting treatment of transactions or seeking false opportunities available due to loops in accounting standards. Forensic accountant or auditors should evaluate whether financial statements are prepared with consistency and adequate disclosure is made in particular to correction pertaining to previously reported material misstatements and also change in accounting treatment (PCAOB, 2008).

List of References
Hopwood, W. S., Leiner, J. J. and Young, G. R. (2008). Forensic Accounting. New York: McGraw-Hill Irwin. .
PCAOB. (2008). Auditing Standard #3: Audit Documentation. Washington: PCAOB.
PCAOB. (2008). Auditing Standard #6: Evaluating Consistency of Financial Statements. Washington: PCAOB.
PCAOB. (2004). Auditng Standard #1: tReferences in Auditors Reports to the Standards of the Public Accounting Oversight Board. Washington: PCAOB.
PCAOB. (2007). Audting Standard #5: An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements. Washington: PCAOB. Read More
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