As stated by Gordon Brown, the former Prime Mister of the United Kingdom, “what the use of fingerprints was to the 19th century and DNA analysis was to the 20th century, forensic accounting will be to the 21st century”. When people first see the word “forensic”, they naturally categorize it into a science-related field. According to Webster’s Dictionary, the term “forensic” is defined as “belonging to, used in, or suitable to courts of judicature or to public discussions and debate”. Therefore, forensic accounting is generally defined as relating and applying financial facts to legal problems (Singleton and Singleton 12).
Forensic accounting consists of a combination of ...view middle of the document...
Needless to say, forensic auditing is not concerned with providing opinions on whether or not the financial statements of a company fairly state their position or if assurance is provided to the general public. Forensic auditing concentrates on detecting any fraudulent activities that are asset-oriented, in which, are typically carried out for a personal gain (Barnes). The reason why there is a need for both forensic auditing and financial auditing is because the scope of financial audits will rarely uncover these fraudulent activities. Since the auditor’s main concern is to issue an opinion on whether or not the financial statements are fairly presented and are in accordance with Generally Accepted Accounting Principles (GAAP), the likelihood of discovering fraud, under these circumstances, is virtually non-existent.
Forensic auditing is more of a mind-set than a methodology (Singleton and Singleton 30). Financial audits use more of an inductive approach to auditing while forensic audits employ a deductive approach (Singleton and Singleton 29). In simpler terms, financial audits inspect all of the facts that are presented in the financial statements and apply their findings to a set of rules and standards to form an opinion; whereas, forensic audits examine all of the facts pointing towards or against fraudulent activities and use logic to arrive at a conclusion. Forensic auditors are required to possess the skills that are necessary to conduct a proper financial audit while incorporating the skills of a criminal investigator into the audit process (Singleton and Singleton 29). Typically, it is extremely rare to stumble upon an individual who strongly possesses all of these required skills. In order to have the mind set of a forensic auditor, these individuals need to familiarize themselves with both skill sets in order to maximize their potential to conduct an effective forensic audit. With this being said, the forensic auditors mind set suggests that “fraud is possible in any organization and is simply a matter of motive, opportunity, and the integrity of employees and managers” (Singleton, Singleton, Bologna, and Lindquist 71).
Also, forensic auditors should not entirely view people as untrustworthy; rather, the best approach is to identify signs that lead to fraud and exercise professional skepticism. According to UKFraud, there are ten early signs that can help to detect potential fraud before it actually occurs. The following ten steps include: erratic reporting, apparent process laziness, organizational change, data inconsistencies or absence in the archives, audit-time delays, behavioral anomalies, excessive employee gossip, unofficial information technology work, and scapegoating (“Help Net Security”). By monitoring and controlling these activities, the possibility of them escalating into fraud will deteriorate.
What is Forensic Accounting?
Forensic auditing is considered to be a subset of forensic accounting; therefore, it...