Forensic Accounting Introduction

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Introduction and development of Forensic accounting The term forensic auditing started from the 1940’s and has taken significant Place in this modern economy.” In the late 1940s, forensic auditing proved its worth during World War II; however, formalized procedures were not put in place until the 1980s when major academic studies in the field were published (Rasey 2009). Forensic auditing is the specialty area of the accountancy profession which describes engagements that result from actual or anticipated disputes or litigation. According Crumbley et al. (2005) “Forensic” means “suitable for use in a court of law,” and it is to that standard and potential outcome that forensic accountants or auditors generally have to work. Forensic auditing…show more content…
(2008) argues that the activities of Forensic auditors include tracing money laundering and identifying theft activities as well as tax evasion. Companies such as Insurance companies often hire forensic accountants to detect insurance frauds such as arson, and law offices employ forensic accountants to identify marital assets in divorce cases. Forensic auditing has been pivotal in the corporate agenda after the financial reporting problems which took place in some companies around the world (for instance, Enron, Tyco, and WorldCom). These scandals resulted in the loss of public trust and huge amounts of money. In order to avoid fraud and theft, and to restore the badly needed public confidence, several companies took the step to improve the infrastructure of their internal control and accounting systems drastically. It was this development which increased the importance of accountants who have chosen to specialize in forensic accounting and who are consequently referred as “forensic…show more content…
The auditor reviews the effectiveness of the internal control system by sampling transactions and not by a complete review of all transactions. The process can reveal errors. All errors are not considered equal. Some are important and are referred to as material. For example, omission of a million dollar loan that is not recorded in the accounting records might be a material error. Other errors are not material. An example of an error that might not be material would be an arithmetic error due to rounding that causes the reported amount to be ten dollars more or less than the actual amount. These examples are not meant to imply that there are absolute dollar amounts that denote the difference between material and not material (Gray 2008). Fraud management involves a whole gamut of activities: early warnings and alarms; telltale symptoms and patterns of various types of fraud; profiles of users and activities; fraud detection, prevention, and avoidance; minimizing false alarms and avoiding customer dissatisfaction; estimating losses; risk analysis; surveillance and monitoring; security (of computers, data, networks, and physical facilities); data and records management; collection of evidence from data and other sources; report summaries; data visualization; links to management information systems and operation systems (such as billing and accounting); and control actions (such as prosecution, employee
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