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Auditing Principles Essay

1008 words - 5 pages

The Past, Present, and Future of Forensic Accounting
G. Stevenson Smith, PhD, CPA, CMA
The CPA Journal
Vol. 85 (LXXXV)/No. 3
March 2015
pp. 16-21

Today’s business society, including many large corporations as well as small and medium-sized businesses, has been part of the rapid technological advances the world is facing. Nowadays every business is operating via Internet as we are facing constant technological improvements throughout the past couple of decades. That being said, the potential of cybercrimes being committed drastically increased, as the cyber criminals have been able to break into the companies’ systems and manipulate and extract crucial data sets. This article is ...view middle of the document...

As the large corporations and many other businesses expanded and became more complicated to deal with, it became clearer that auditors would not be able to monitor the fraudulent activities as was initially planned. Therefore, forensic accounting started to expand and depart from auditing as the separate accounting field which started to face more challenges. By the passage of the Securities Act of 1933 and the Securities and Exchange Act of 1934, the profession created a more rigorous set of standards and regulations that needed to be followed. During the 1950’s it was emphasized that auditing procedure started to pay less attention on to the detection of fraudulent activities. Responsibility for detecting fraud was rejected by the auditors as they had legal protection and limited liability in case fraud was not discovered during audit performances. In the 1970’s fraudulent events era, the same topics were questioned repetitively. How to protect businesses, since there has been a weakening of businesses moral values. The AICPA in 1974, stated that the auditors should be responsible for detecting the material fraud by using due professional care. From the auditors’ point of view, their initial job is to form an opinion on whether or not the financial statements present fairly the financial standing of a company with accordance to GAAP, not to directly uncover the unintentional or intentional misrepresentations of the financial statements. The issue of the scope of auditor’s responsibilities has been debated for many decades. The overall conclusion is that auditors are not necessarily focusing on detecting and investigating whether or not there are suspicious and malicious activities within the company being audited. This does not exclude the fact that auditor has an obligation to report any suspicious activities if those arise from reviewing of the financial records of the company.
Previously mentioned, the biggest challenges forensic accounting is facing in recent years are technological improvements. Today’s definition of a forensic accounting is much broader than it used to be solely because of these innovations....

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