Forensic accounting has risen to prominence because of increased financial frauds popularly known as white collar crimes. Forensic accounting can be described as a specialized field of accountancy which investigates fraud and analyse financial information to be used in legal proceedings. Forensic accounting uses accounting, auditing, and investigative skills to conduct investigations into theft and fraud. It encompasses both Litigation Support and Investigative Accounting Forensic audit can be defined as an examination of evidence regarding an assertion to determine its correspondence to established criteria carried out in a manner suitable to the court.
Objectives of Forensic Accounting and Auditing
• To use the forensic accountant’s conclusions to facilitate a settlement, claim, or jury award by reducing the financial component as an area of continuing debate
• To avoid fraud and theft
• To restore the downgraded public confidence
• To formulate and establish a comprehensive corporate governance policy
• To create a positive work environment
The fraud prevention strategy outlines a high level plan on how the organization will go about
implementing its fraud prevention policy.
An effective fraud risk management approach encompasses controls that have three objectives:
Fraud risk management strategy can follow the following steps:
• Identify risk areas.
• Understand and assess the scale of risk.
• Develop a risk response strategy.
• Implement the strategy and allocate responsibilities.
• Implement and monitor the suggested controls.
• Review and refine the process and do it again.
Fraud risk management is not a one-time exercise but a continuous process. As businesses change and grow, so do their fraud risks.
Factors responsible for frauds and malpractices:
There is no doubt that frauds and malpractices provide the impetus for forensic accounting investigative auditing. But what are the factors for which people commit frauds or lead to accounting or economic irregularities? If an attempt is made to analyse the business or corporate frauds, one can unveil three main components for committing such “white-collar crime”.
These factors are pressure, opportunity and justification for committing fraud which all together constitute “fraud triangle”. Components of the fraud triangle are similar to the fuel, spark, and oxygen which together cause fire.When the three come together, inevitably fire breaks out the main task of forensic accountant is to trace the weak points in the business following the fraud triangle. It has been said that fraud triangle consists of three core concepts which together create a situation beneficial for committing fraud and malpractices.
The above factors give birth to these core concepts:
Incentive, Opportunity and Rationalisation. Recent study has shown another factor which is a capability. For example, people must have the incentive and opportunity to commit financial frauds and irregularities, as well as ability to justify it by means of please.
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