Discuss about the Forensic Accounting Impact on Fraud Detection.
Contemporary business activities have seen occurrence of multiple frauds while compiling of reliable financial statements (Hogan et al., 2008). Rising of numerous frauds in the past and currently have totally disrupted financial information that has been provided through such statements. Users of such financial statements have faced greatest amounts of challenge from rising financial frauds as they had been furnished with falsified financial information. Businesses hold major responsibility towards detection and investigation of financial frauds while managing financial information of the system. They need to adapt adequate control procedures through which it is possible to detect frauds, which encompasses internal auditing and other methodologies. Forensic Accounting roles come into consideration at such an instance (Pearson & Singleton, 2008). The role of forensic accounting involves speciality practices in accounting which entails various engagements that takes into considerations litigations or disputes for generating standardised potential outcomes.
Rising frauds and fraudulent in the domain of financial practices have led to emerging importance of forensic accounting. Through application of forensic accounting it becomes fairly easier to detect any type of financial frauds that are existing and then take remedial action against them. Though organizational leaders or senior management does not want to prepare falsified information, due to some personal gains of accountants, there can arise financial misrepresentation. Moreover, often accountants are made to conform to steps which are not in accordance to ethical guidelines. Internal control is not always able to detect such frauds or misrepresentations; there rises the scope of forensic accounting. Thus, the core aim of this study is to detect financial frauds that are existing within systems of businesses to reduce financial misrepresentations. In order to attain to goals of the study, following research objectives have been laid down.
Under contemporary states of businesses, securing concrete financial data through uncovering financial related information is viewed as a by and large an integral objective. Various financial frauds from the past and the start of the century have genuinely disturbed the trust of various clients in investment market, who makes use of financial information. DiGabriele (2009) examined that over the most recent fifteen years, accountants who are referred to as forensic accountants have been occupied with identifying frauds in financial related articulations. According to responsibilities provided by businesses, legal accountants need to have strong learning of accounting and reviewing, created ability of good correspondence – verbal, composed and investigative, freedom and an extensive level of information about the utilization of data innovation in accounting and reviewing techniques (Carpenter, Durtschi & Gaynor, 2011).
Frauds and Omissions leading to inaccuracy of Financial Statement as detected by Forensic Accounting
Drawn in by the administration, directors or different client’s investment markets, forensic accountants are responsible for reporting financial frauds or off base tangibly huge data. Based on explanations provided, the clients, financial specialists, settle on choices about destructive results. Therefore arises the need of the more extensive accounting and clients of budgetary proclamations to base their choices on the data that demonstrates the genuine picture of budgetary and income position of an endeavor. Frauds are acts that are embraced with the aim of putting forth finance related expressions inaccurate furthermore, misrepresented. Fiia (2013) provided that the genuine picture will not be arrived at in case, frauds arises during the time spent getting ready finance related explanations.
Distortion of actualities that are of material nature can be accomplished from various perspectives; firstly, through misrepresenting and changing either accounting reports that speak to a ground for enlisting business changes and control of the rightness of attempted booking. Culprits on-screen characters in frauds are at an alternate level of the administration of endeavors, counting top administration where the outsider is additionally included. On the other hand accounting enlistment based on which monetary explanations are made. Additionally, distortion of realities is accomplished through lacking valuation of adjust positions, inaccurate divulgence and so forth (Koh, Arokiasamy & Suat, 2009). Other than frauds, the error of finance related articulations is likewise caused by the exclusions that show up amid the production of accounting documentation and its handling in getting ready and making finance related articulations. Golden, Skalak and Clayton (2011) identified that with respect to as the reason for mistake of finance related articulations, numerous inquiries that legitimacy the consideration of the accounting estimates and the clients of budgetary articulations can be made. One of the inquiries can, clearly, indicate pointers and highlights that can demonstrate to the level of receptiveness to chance with regards to frauds in budgetary articulations of the undertaking. They generally show up amid the gathering of documentation and its handling in planning finance related articulations, accounting gauges that prompt overestimation or underestimation of specific realities, e.g. balance positions; while using wrongly accounting standards in regards to adjusting, showing and uncovering also. It is viewed as that the wellsprings of hazard dwell in the territories of corporate i.e. hierarchical culture, accounting estimates along with the utilization of the alternative right in accounting approach.
Circumstances of undertakings making business consistently request the utilization of accounting estimates in planning and creating budgetary proclamation. Moreover, the utilization of accounting estimates cannot imperil the unwavering quality of finance related data. All together that this request could be satisfied, gauges must be objective (Gray, 2008). In this manner, the objectivity of appraisals is the target one endeavors to. There is a measure of subjectivism in gauges. In this manner, one ought to have as a main priority as long as the makers of finance related proclamations have as their point, the foundation of target evaluates, and the dependability of monetary articulations is not risked. The issues rise when misrepresentation turns into the point of forming finance related explanations. Estimates progresses toward becoming means for its acknowledgment since they prompt overestimation or underestimation of property and results. The clients of budgetary proclamations, frequently, cannot see that the gauges are incredible, which thus expands the potential outcomes of misrepresentation.
Control Mechanisms of Forensic Accounting for Fraud Detection
Kranacher et al., (2008) proposed that the likelihood of utilizing the privilege of decision in the accounting approach in the procedure of budgetary detailing is viewed as a wellspring of hazard as it has been already specified. It is realized that the privileges of decision choice in standardizing premise and routine with regards to finance related revealing have been available for a considerable length of time. By picking certain privileges of decision, through use of the supposed forceful accounting approach, it is conceivable to oversee benefit that approach to accomplish the delaying of duties and to appear, in monetary articulations, the benefit that is lower than genuine. Various IAS/IFSR still contain the right of decision. In spite of the fact that their reality puts forth the equivalence of budgetary expressions troublesome, it is, be that as it may, evaluated as a need. Exploring and recognizing cheats in finance related explanations of the essential errand of a venture administration and other controlling foundations and managing bodies that ought to make legitimate regularizing structure also, secure their application. The significance of solid budgetary announcing represents the presence of obligation in wide terms.
Corporate administration, the frameworks of inside control, interior evaluating and review panel speak to the front line of safeguard from monetary frauds. Corporate administration speaks to the procedure where directors oversee corporate assets with the point of accomplishing certain level of execution. It sets up and furthermore screens destinations, approach and the receptiveness to danger of endeavors (Dhar & Sarkar, 2010). Other than corporate administration, framework and inner controls, inside evaluating and review board involve the second component whose essential goal is extortion anticipation.
Be that as it may, the administration of the venture, other than various targets of the undertaking characterized by business arrangement, has as an assignment to see to the nature of finance related articulations. Pedneault et al. (2012) proposed that the arrangement of inner controls presumes all approaches and methods that the administration has embraced with a specific end goal to help in accomplishing, however much as could reasonably be expected, the administration’s goal concerning of normal and effective performing of business, including the administration’s arrangement, security of means, aversion from extortion and oversights, rightness, culmination of accounting records and auspicious planning of dependable budgetary data. Data picked up from an inward reviewer empowers a scientific bookkeeper to expand the proficiency of examination (Singleton & Singleton, 2010). At that point, for a measurable bookkeeper, of extraordinary significance is the understanding that an outside examiner can give about the kinds of hazard, business exchanges, documentation, frameworks arrangement of interior control and accounting data and work force. Working papers of a reviewer can additionally be an essential wellspring of information important for the comprehension of control condition, accounting framework and control technique. In every one of the situations when they presume that there is an extortion that they can’t unravel, scientific bookkeepers collaborate with an inner examiner. The reason being that an inward reviewer knows the venture, continuous exchanges, representative’s better and additionally inward control and data frameworks than a scientific bookkeeper.
Nature of Bookkeeping and legalities of Fraud Detection
The nature of reports is adapted by the nature of embraced examination, fundamentally by a measurable bookkeeper and other control establishments occupied with extortion recognition in monetary proclamations, all together that the clients, who are given explanations, could be in the situation to settle on exact appraisals and choices. The conditions that the examination is coordinated by a review board of trustees, puts a legal bookkeeper and different members in the examination under commitment to benefit the review board of trustees. Ramamoorti (2008) analysed that at last, after an examination has been finished, a scientific bookkeeper makes a report on the attempted examination and additionally report for the need of court strategy. In any case of the reality which of the specified reports is being referred to, a scientific bookkeeper must put an exertion in making them. This worries their frame and also their substance. Data that the report contains must be exact, unbiased, applicable and opportune. In the report, the attempted stages in examination, methods for gathering information and their investigation as proofs are given.
Research method is regarded as one of the most essential approaches to any study and hence requires immense care. This section is going to give an outline of the research methods that have been used for completing this study by meeting research objectives (Taylor, Bogdan & DeVault, 2015). There has been an attempt to find probable solution that has been encountered during this study.
Research Philosophy
Types of Research philosophies are multiple and scholar needs to select one amongst them. Research philosophy acne b defends as a tool that is adopted by a researcher to determine structure of their study. Research philosophies are of four types and this includes ontology, rhetoric epistemology and axiology (Lindlof & Taylor, 2017). A researcher is able to choose anyone of these philosophies for completing his/her study in a more effective manner. The main objective of utilizing epistemology philosophy is to break down specifics that reside on the content area. It is often termed as study of knowledge. There are certain factors which contribute to acquisition of knowledge and they are: truth, belief and justification. Ontology is concerned with nature of reality. It can be said that it is totally based upon facts. If a scholar intends to maintain ethics then he/she need to adopt axiology as a research philosophy. Rhetoric philosophy helps a researcher to conduct an in-depth study of problems encountered while interpreting results. In order to conduct this study, the scholar will aim at adapting epistemology research philosophy. In epistemology research technique, the scholar will aim at breaking down concepts related to forensic accounting and techniques used for the same purposes.
Research Approaches
Research approaches are of four types and this includes qualitative, quantitative, inductive and deductive approach.
Quantitative and qualitative approach:
Quantitative approach aims at analyzing data with the help of statistical tools. On the other hand qualitative approach is concerned with the procurement of explanations on a particular research subject. Interviews are conducted for conducting qualitative research. On the contrary survey is a medium to get quantitative results.
Inductive or deductive research approach
If a researcher wants to infer results with the application of theory then he/she ought to choose deductive approach. Inductive approach operate in three steps that includes observation, research and based on these two steps result is obtained. The results help in formulating theories. The scholar will make use of qualitative as well as quantitative data for the purpose of this study. While selecting approach scholar will primarily aim at inductive techniques adoption.
Research Design
Research design is one of the most crucial aspects of a study (Fowler, 2013). This is because functionality as well as efficiency of a research work can only be determined with the help of design.
Types of research designs
There are four types of research design which include explanatory, exploratory, descriptive and predictive. Explanatory design is adopted for connecting different ideas and to understand reasons, causes and their effects. It is mainly concerned with associations shared with different variables. On the other hand exploratory design is used by a scholar to explore new facts and thereby finding a concrete solution. As the term suggests that this type of design is adopted for describing situations and they do not make any accurate predictions. The designs whereby results of exploratory methods are used for predicting new occurrences are termed as predictive design. The scholar will aim to accommodate exploratory research designs for the purpose of this study, where various theories and concepts related to financial frauds will be explored and examined.
Research Method
The method which is used for collecting information so as to conduct research successfully is termed as research methods (Saunders, 2011). Research methods are mainly of two types such as primary and secondary. In order to conduct primary research one need to conduct survey whereas secondary methods are conducted through study of journals or articles.
Research tools
Observation: Observations are of two kinds and this include participative and structured. Participative observation is generally conducted in quantitative approach and in it based on personal experiences; a researcher conducts his/her research works (Zikmund et al., 2013). On the other hand structured observations are used for qualitative studies. These types of observations are used on predefined segments.
Interviews: Interviews can be divided into two categories namely structured and semi-structured. Structured interviews are taken by a scholar to gain an understanding regarding a subject form respondents through surveys. The respondents have to behave in accordance with the approach defines by the interviews. On the other hand semi-structured interviews are considered to be flexible in comparison to structured ones.
Questionnaires: Depending upon the category for a study, a scholar is free to choose his/her questionnaires. Questionnaires are of two types namely: open-ended and close need. Closed ended questionnaires are concerned with a list of questions that are asked by a surveyor form different respondents. A respondent has to choose options form a given set as prepared by a researcher. An open ended questionnaire is mainly concerned with a face-to-face interview whereby an interviewee is free to give their opinion along with reasons.
Focus groups: In order to understand viewpoints of people on a particular subject, the researcher forms groups which comprise of specified number of people. While conducting focus group discussion, a scholar note down important aspects related to the topic. Selection of focus groups helps a scholar to fulfill his/her research objectives.
The scholar will make use of mixed research techniques by adopting interviews, questionnaire, and focus group survey. Approaching a varied technique of data collection will allow the researcher gain varied types of data and information pertaining to the study.
Sampling techniques
Sampling can be taken as the representative of entire population. As it is not possible to obtain opinions of every single person in a population, so a researcher specifies a sample size (Liamputtong, 2009). A sample size helps in understanding the opinions and viewpoints of people regarding the research subject. Sampling techniques consists of probability sampling and non-probability sampling. A researcher has full freedom to select his/her desired technique. The scholar will aim at collecting data from Retail industry in Australia, due to frauds prevalent in this industry. Due to fraud taking place at Target, the scholar had been able to identify enormous challenges within this industry.
Data collection methods
There are basically two methods used for collecting data and they are: primary method and secondary method. Primary data is regarded as original or firsthand data as it is directly collected from the respondents (Bryman, 2015). On the contrary secondary data are collected from already published articles books and online journals. In case of a company, primary data can be collected from staffs and managers. While conducting surveys, a surveyor has to approach participants thereby taking their agreements for appearing into the survey. After their agreement, questionnaires are to be distributed among the participants. Employees could be approached through emails. For interviews, managers can be approached and it is the responsibility of the interviewer to make adequate arrangements for the interview. On the contrary, secondary data is collected from varied sources like newsletters, magazines, websites, government periodicals, books and journals
Data Analysis method
After collecting primary data, it is to be analyzed for obtaining results. In order to analyze quantitative data, statistical as well as frequency tools are adopted (Neuman, 2013). Software like MS excel tool pack can be used for recording and analyzing data. Qualitative data are usually analyzed in a more descriptive manner.
Ethical considerations:
Limitations
This study is limited in terms of time, budget and sample size. The scholar has been unable to conduct the survey in a broader way due to limited time. In fact small sample size is another reason for its limitation. Constraint budget has again obstructed the researcher from buying premium journals that would have made the research reach its desired goal.
Reference List
Bryman, A., 2015. Social research methods. Oxford university press.
Carpenter, T.D., Durtschi, C. and Gaynor, L.M., 2011. The incremental benefits of a forensic accounting course on skepticism and fraud-related judgments. Issues in Accounting Education, 26(1), pp.1-21.
Dhar, P. and Sarkar, A., 2010. Forensic accounting: An accountant’s vision.
DiGabriele, J.A., 2009. Implications of regulatory prescriptions and audit standards on the evolution of forensic accounting in the audit process. Journal of Applied Accounting Research, 10(2), pp.109-121.
Fiia, F., 2013. Forensic accounting: A tool for fraud detection and prevention in the public sector.(A study of selected ministries in Kogi state). International Journal of Academic Research in Business and social sciences, 3(3), p.1.
Fowler Jr, F.J., 2013. Survey research methods. Sage publications.
Golden, T.W., Skalak, S.L. and Clayton, M.M., 2011. A guide to forensic accounting investigation. John Wiley & Sons.
Gray, D., 2008. Forensic Accounting and Auditing: Compared and Contrasted to Traditional Accounting and Auditing. American Journal of business education, 1(2), pp.115-126.
Hogan, C.E., Rezaee, Z., Riley Jr, R.A. and Velury, U.K., 2008. Financial statement fraud: Insights from the academic literature. Auditing: A Journal of Practice & Theory, 27(2), pp.231-252.
Koh, A.N., Arokiasamy, L. and Suat, C.L.A., 2009. Forensic accounting: Public acceptance towards occurrence of fraud detection. International Journal of Business and Management, 4(11), p.145.
Kranacher, M.J., Morris, B.W., Pearson, T.A. and Riley Jr, R.A., 2008. A model curriculum for education in fraud and forensic accounting. Issues in Accounting Education, 23(4), pp.505-519.
Liamputtong, P., 2009. Qualitative research methods.
Lindlof, T.R. and Taylor, B.C., 2017. Qualitative communication research methods. Sage publications.
Neuman, W.L., 2013. Social research methods: Qualitative and quantitative approaches. Pearson education.
Pearson, T.A. and Singleton, T.W., 2008. Fraud and forensic accounting in the digital environment. Issues in Accounting Education, 23(4), pp.545-559.
Pedneault, S., Silverstone, H., Rudewicz, F. and Sheetz, M., 2012. Forensic accounting and fraud investigation for non-experts. John Wiley & Sons.
Ramamoorti, S., 2008. The psychology and sociology of fraud: Integrating the behavioral sciences component into fraud and forensic accounting curricula. Issues in Accounting Education, 23(4), pp.521-533.
Saunders, M.N., 2011. Research methods for business students, 5/e. Pearson Education India.
Singleton, T.W. and Singleton, A.J., 2010. Fraud auditing and forensic accounting (Vol. 11). John Wiley & Sons.
Taylor, S.J., Bogdan, R. and DeVault, M., 2015. Introduction to qualitative research methods: A guidebook and resource. John Wiley & Sons.
Zikmund, W.G., Babin, B.J., Carr, J.C. and Griffin, M., 2013. Business research methods. Cengage Learning
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