COVENANT UNIVERSITY, COLLEGE OF DEVELOPMENT STUDIES, SCHOOL OF BUSINESS, DEPARTMENT OF ACCOUNTING COURSE: FORENSIC ACCOUNTING
COURSE CODE: ACC 416
TOPIC: FORENSIC ACCOUNTING AND FRAUD AUDITING
OBJECTIVE: To acquire the knowledge and skills about forensic audit, its reporting and documentation. THE CONTEXT OF FORENSIC AUDITING
Forensic audit encompasses the examination of evidence regarding an assertion to determine its correspondence to establish criteria carried out in a manner suitable to the court. Auditing has been defined as the systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and communicating the results to interested users. Auditing involves searching and verifying accounting records along with other evidence supporting financial statements. Since forensic accounting is the application of financial skills and investigative mentality to unresolved issues conducted within the context of the rules of evidence, the role of the forensic accountant involves information assurance or attestation to the reliability of information. The forensic accountant who is retained to attest to information assertion can carry out the attestation in one of four ways: (a) Agreed-upon procedures: A forensic accountant will verify the procedures whereby an independent researcher can find out if assertion is true or not. (b) Review: A forensic accountant will verify that someone did an initial inquiry and used systematic and analytical procedures or not. © Examination: A forensic accountant will express an opinion about whether a material misstatement is found or not. (d) Audit: A forensic accountant will express an opinion about whether historical financial documents exist to verify an assertion as true or not.
It should be noted that an examination is called an audit when historical documents like financial statements are involved. An auditor will therefore perform the following functions:
Inspect those documents for the detection of material fraud.
Perform an audit trail vouch for the existence of source documents.
Tour the plant and facilities (observe assets).
Make inquiries inside and outside the organization- conference calls.
Perform other auditing procedures as appropriate.
When the audit is over and done, an auditor will issue a standard report stating whether it is the auditor’s opinion if the financial statements are presented fairly in conformity with generally accepted accounting principles (GAAP). AUDIT REPORTING
An audit reporting is called a report of independent accountants, and independence is a key issue and vital to the reliability of the report.
The ultimate purpose of the auditor’s opinion is to provide users with reasonable assurance that the financial statements examined are in full conformity with generally accepted accounting principles.
The concept of “a reasonable assurance” is intended to describe the whole process i.e. that the audit was conducted in accordance with generally accepted auditing principles as well as have the following meanings: •
Reliability of financial reporting.
Effectiveness and efficiency of operations.
Compliance with applicable laws and regulations.
Reflection upon a company’s management in terms of credibility and integrity.
Often, the board of directors nominates who does the auditing while the stockholders (or major stockholders) approve the nomination.
The financial statement an auditor reports include: the balance sheet, the income statement, the statement of retained earnings, and the statement of cash flows. The auditor is provided these statements for at least 2-3 years of a company’s operation, and subsidiaries usually have their statements consolidated with those of the parent corporation. The company also provides a series of explanatory notes for full disclosure required by law. The...
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