Wednesday, January 19, 2011

Unveiling the Mystery of Forensic Accounting

Forensic Accounting 101 via Accounting Today. 
To many people the differences between a forensic accounting investigation and an audit may be unclear. The Statements on Auditing Standards No.1, guidelines for audits, states: “The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Because of the nature of audit evidence and the characteristics of fraud, the auditor is able to obtain reasonable, but not absolute, assurance that material misstatements are detected. The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements, whether caused by error or fraud, that are not material to the financial statements are detected.”
Because the role of auditors focuses on reasonable assurance that financial statements are free of material misstatements, they test financial transactions on a sample basis. An auditor reviews the books and records for reasonableness. A detail review of the nature of every transaction is not the goal of an audit.
However, in a forensic accounting investigation materiality is not a factor and does not affect the scope; sample testing is generally not done. A review of all records for a time period is typically performed to determine trends and identify patterns. Transactions of all sizes can be reviewed. In fact, even the smallest transactions can lead a fraud examiner to a potential fraudulent scheme.
Click Here to Read: Unveiling the Mystery of Forensic Accounting

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