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Guide to Forensic Accounting Investigation

ISBN-10: 0471469076

ISBN-13: 9780471469070

Edition: 2005

Authors: Thomas W. Golden, Steven Skalak, Mona Clayton, Steven L. Skalak, Mona M. Clayton

List price: $199.95
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Description:

Today's demanding marketplace expects auditors to take responsibility for fraud detection, and this expectation is buoyed by such legislation as the Sarbanes-Oxley Act and the Auditing Standard (SAS99), which requires increased performance on the part of the auditor to find material financial statement fraud.Written by a group of the best forensic accountants and auditors at PricewaterhouseCoopers, The Auditor's Guide to Forensic Accounting explores exactly what assurances auditors should provide and suggests alternatives to giving the capital markets more of what they are requiring-greater assurances that the financial statements they rely upon for investment decisions are free of material error, including fraud. It reveals the surprising complexity of fraud deterrence, detection, and investigation, and offers a step-by-step approach to understanding that complexity.From basic techniques to intricate tests and technologies, The Auditor's Guide to Forensic Accounting is a rich, multifaceted, and fascinating answer to the need for wiser, savvier, better-trained financial statement and internal auditors who are thoroughly familiar with fraud detection techniques and the intricate, demanding work of forensic accounting specialists.
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Book details

List price: $199.95
Copyright year: 2005
Publisher: John Wiley & Sons, Incorporated
Publication date: 2/17/2006
Binding: Hardcover
Pages: 576
Size: 7.00" wide x 10.00" long x 1.50" tall
Weight: 2.596
Language: English

Preface
Acknowledgments
Fraud: An Introduction
Fraud: What Is It?
Fraud: Prevalence, Impact, and Form
Fraud in Historical Perspective
Types of Fraud
Root Causes of Fraud
A Historical Account of the Auditor's Role
Auditing: Ancient History
Growth of the Auditing Profession in the Nineteenth Century
Federal and State Securities Regulation before 1934
Current Environment
Auditors Are Not Alone
Deterrence, Auditing, and Investigation
Conceptual Overview of the Fraud Deterrence Cycle
Corporate Governance
Transaction-Level Controls
Retrospective Examination
Investigation and Remediation
First Look Inside the Fraud Deterrence Cycle
Corporate Governance
Transaction-Level Controls
Auditing and Investigation
The Roles of the Auditor and the Forensic Accounting Investigator
The Patrolman and the Detective
Complexity and Change
Auditor Roles in Perspective
Not All Good People
Each Company Is Unique
Role of Company Culture
Estimates
Choices
What Auditors Do
Fraud versus Error
Reasonable Assurance
Materiality
Bedrock of an Effective Audit
Professional Skepticism
Knowledge and Experience
Independence and Objectivity
SPADE
Auditing Standards Take a Risk-Based Approach to Fraud
Management Override
Regulatory Reaction to Fraud
Financial Benefits of Effective Fraud Management
Conclusion
Psychology of the Fraudster
Calculating Criminals
"It Can't Be Bob"
Situation-Dependent Criminals
Power Brokers
Fraudsters Do Not Intend to Harm
"For the Good of the Company"
Personal Catastrophes
An Educated, Upstanding Citizen
Kinds of Rationalization
Auditors' Need to Understand the Mind of the Fraudster
Conclusion
Financial Reporting Fraud and the Capital Markets
Targets of Capital Market Fraud
Securities Investment Model
Overview of Financial Information and the Requirement to Present Fairly
Overview of Fraud in Financial Statements
Accounting Irregularities as an Element of Financial Fraud
Some Observations on Financial Fraud
Fraud from Within
Summary
Auditor Responsibilities and the Law
Independence, Objectivity, Skepticism
SEC Final Rules for Strengthening Auditor Independence
SEC Regulation of Forensic Accounting Services
Consulting versus Attest Services
Integrity and Objectivity
Independence Standards for Nonattest Services
Professional Skepticism
Trust but Verify: A Case Study
Trust but Verify: Exploring Further
Loose-Thread Theory of Auditing
Further Thoughts on the Loose-Thread Theory
Forensic Investigations and Financial Audits: Compare and Contrast
Potential Red Flags and Fraud Detection Techniques
Types of Fraud Revisited
Fraud Detection: Overview
Laying a Foundation for Detection
Assessing the Risk of Fraud
Fraud Risk Factors
A Word on Information Technology
Interpreting Potential Red Flags
Importance of Professional Skepticism
Revisiting the Fraud Triangle
Incentive and Pressure
Opportunity
Rationalization and Attitude
Identifying and Evaluating Risk Factors
Discussion among Audit Team Members
Information Gathering
Other Sources
Analytic Procedures
Current Company Data versus Company Data from Prior Periods
Company Data versus Company Budgets, Forecasts, or Projections
Company Data versus Industry Data and/or Comparable Company Data
Company Financial Data versus Company Operational Data
Company Data versus Auditor-Determined Expected Results
Analytic Techniques
Assessing the Potential Impact of Fraud Risk Factors
Evaluating Controls
Addressing the Identified Fraud Risks
Unpredictable Audit Tests
Observation and Inspection
Financial Statement Fraud: Detection Techniques
Revenue Recognition
Corruption
Summary
Internal Audit: The Second Line of Defense
What Do Internal Auditors Do?
Internal Audit Scope of Services
The Handoff to Forensic Accounting Investigators and Legal Counsel
Perception Problem
Complex Corporate Fraud and the Internal Audit
WorldCom and the Thornburgh Report
Case Studies: The Internal Auditor Addresses Fraud
No Segregation of Duties-and a Very Nice Car
Odd Transportation System
A Tragic Circumstance
How Many Lunches Can You Buy?
Making the Numbers Look Right
How Not to Earn a Bonus
A Classic Purchasing Fraud
The Loneliness of the Internal Auditor
Hitting the Jackpot in the Gaming Industry
Reporting Relationships: A Key to Empowering Fraud Detection
Tomorrow's Internal Auditor, Tomorrow's Management and Board
Financial Statement Fraud: Revenue and Receivables
Improper Revenue Recognition
Timing
Revenue Recognition Detection Techniques
Side Agreements
Liberal Return, Refund, or Exchange Rights
Channel Stuffing
Bill-and-Hold Transactions
Early Delivery of Product
Partial Shipments
Contracts with Multiple Deliverables
Improper Allocation of Value in Multiple-Element Revenue Arrangements
Up-Front Fees
Improper Accounting for Construction Contracts
Related-Party Transactions
Revenue and Receivable Misappropriation
Revenues
Receivables
Fictitious Sales
Lapping
Redating
Inflating the Value of Receivables
Extended Procedures
Round-Tripping
Improperly Holding Open the Books
Consignments and Demonstration Goods
Summary
Financial Statement Fraud: Other Schemes and Misappropriations
Asset Misstatements
Inventory Schemes
Investment Schemes
Recording Unrealized Declines in Fair Market Value
Recording Fictitious Fixed Assets
Depreciation and Amortization
Hanging the Debit
Software Development Costs
Research and Development Costs
Start-Up Costs
Interest Costs
Advertising Costs
Understatement of Liabilities and Expenses
Off-Balance-Sheet Transactions
Two Basic Accounting Models
Cookie Jar Reserves
Improper and Inadequate Disclosures
Materiality
Disbursement Schemes
Invoice Schemes
Check Tampering
Expense Reimbursement Schemes
Payroll Schemes
When and Why to Call In Forensic Accounting Investigators
Today's Auditors Are Not Forensic Accounting Investigators
Auditors Are Not Authenticators
Auditors Have Limited Exposure to Fraud
Auditors Are Not Guarantors
Historically, Audits May Have Been Predictable
Potential Trigger Points of Fraud
Reliance on Others
Conclusion
Teaming with Forensic Accounting Investigators
Forensic Accounting Investigators' Cooperation with Internal Auditors
Internal Audit's Position and Function
Resource Models
Working Together
Forensic Accounting Investigators' Cooperation with External Auditors
Client History
The External Auditor in Today's Environment
Objectives of All Interested Parties
Forensic Accounting Investigators' Objectives
Objectives of Other Parties to the Investigation
How Should the Investigation Objectives Be Defined?
Who Should Direct the Investigation and Why?
Ready When Needed
Where to Find Skilled Forensic Accounting Investigators
Internal Audit
Engaging External Forensic Accounting Investigators
Accounting and Auditing Firms
Potential Missteps: Considerations When Fraud Is Suspected
Confronting Suspects
Dismissing the Target
Assumptions
The Small Stuff Could Be Important
Materiality: More on a Key Topic
Addressing Allegations
The Case of the Central American General Manager
Exercising Skepticism
Case Outcomes
Investigative Techniques
Timing
Communication
Early Administrative Matters
Predication
What Should You Know before You Start?
Gaining an Understanding
Gathering and Securing Information
Coordination
Other
A Word about Insurance
Exceptions and Other Considerations
Document Review
ComQuest
CPA Services
How to Read a Check
Airline Tickets
Conclusion
Anonymous Communications
Typical Characteristics of Anonymous Tips
Federal Statutes Related to Anonymous Reporting and Whistle-Blower Protections
Receipt of an Anonymous Communication
Initial Understanding of Allegations
Determine Whether Any Allegation Requires Immediate Remedial Action
Development and Implementation of the Investigative Strategy
The Investigation Team
Disclosure Decisions
Prioritize the Allegations
Interviewing Employees
Follow-Up Tip
Conclusion
Background Investigations
Commercial Media Databases
Other Public Records
Commercial Database Providers
Other Sources
Unique Internet Sources
Other Government Agencies
International Investigations
Conclusion
The Art of the Interview
Difficulty and Value of Obtaining an Admission
Planning for the Interview
Types of Interviews
The Information-Seeking Interview
The Admission-Seeking Interview
Others May Wish to Attend Interviews
Interview Process
Documenting the Interview
Summary
Analyzing Financial Statements
Developing Effective Analytic Procedures
Vertical Analysis
Horizontal Analysis
Ratio Analysis
Reasonableness Testing
Data-Mining Analysis
Using Financial Ratios as Measures of Risk or Indications of Fraud
Identifying Other Relationships That Might Indicate Fraud
Margin Analysis
Focus on Disparity of Net Income to Cash Balances
Evaluate Increases in Accounts Receivable in Relation to Sales Increases
Evaluate Interim Results and Seasonality
Common Analytic Pitfalls
Identifying Signs of Earnings Management
The Beneish Research
Data Mining: Computer-Aided Forensic Accounting Investigation Techniques
Benefits and Pitfalls
Benefits
Other Considerations
Nearly Every Investigation Can Benefit from Forensic Technology
Effective Data Mining
What Relevant Data Might Be Available?
Audit Trails (Traffic Data)
Faster/Better/Cheaper
Access to Relevant Data
Assessing Data Quality and Format
Scope of Available Data
Quality of Available Data
Time Required and Data Requests
Data Cleaning
Eliminating Duplicate Information
Testing the Data for Completeness and Accuracy
Understated Amounts
Overstated Amounts
Incomplete Responses
Incomplete Data Sets
Skills of the Forensic Technologist
Technical Skills
Communication Skills
Effective Use of Data Analysis Results
Role of Data Analysis in the Investigation
Data Mining in Action
Check Disbursement File
Examining the Vendor Master File and Payments History
General Ledger Searches
Keyword Searches
Deleted/Slack/Unallocated Space
Data Sorting
Choice of Tools
Presenting Results
Reviewing the Essentials
Conclusion
Building a Case: Gathering and Documenting Evidence
Critical Steps in Gathering Evidence
Considerations at the Time of Retention
Document Retention Considerations
Planning Considerations
Creating a Chain of Custody
Whose Evidence Is It?
Evidence Created by the Forensic Accounting Investigator
Working Papers
Reports
What Evidence Should Be Gathered?
Investigations of Vendors
Investigations of Foreign Corrupt Practices Act Violations
Investigations of Improper Related-Party Activity
Investigations of Employee Misappropriations
Investigations of Specific Allegations
Investigations of Financial Statement Errors
Important Considerations regarding Documents and Working Papers
Conclusion
Supporting a Criminal Prosecution
Key Considerations
Deterrent Effect of Appropriate Response
U.S. Sentencing Commission Guidelines
Expense and Possible Outcomes
Referrals for Prosecution May Attract Public Attention
Referral Considerations
Refer the Matter to State, Local, or Federal Prosecutors?
Prosecutors Must Prioritize Cases
Forensic Accounting Investigator May Increase the Success of a Referral
Reputational Benefits
Plea Agreements
Filing a Civil Lawsuit
Report of Investigation
Types of Reports
Importance of Adequate Preparation
Standards of Reporting
AICPA Consulting Standards
ACFE Standards
The Written Report of Investigation
Basic Elements to Consider for Inclusion in a Report of Investigation
Summarizing Your Findings
Written Report of Expert Witness Opining for the Plaintiff on a Civil Fraud Claim
Affidavits
Informal Reports
Giving a Deposition
Be Prepared
It's Your Deposition
Objectives of a Deposition in Civil Litigation
You Are Being Measured
Reviewing Your Deposition Transcript
Other Considerations
Mistakes to Avoid in Reporting
Avoid Overstatement
Avoid Opinion
Identify Control Issues Separately from Investigative Findings of Fact
Use Simple, Straightforward Language Focused on the Facts
Avoid Subjective Comments
Working Papers
Signed Engagement Letter
Relationship Review
Substantive Working Papers
Each Working Paper Should Stand on Its Own
Testimony Binder
Interview Memorandums
Working with Attorneys
In the Company of Lawyers
Confidentiality Requirements
Forming the Investigative Team
Documentation
Civil Litigation
Interviewing
External Audit Firm
Working for or Interacting with Law Enforcement or Government Agencies
Disagreements with Counsel
Conclusion
Conducting Global Investigations
On International Assignment
Getting Started
Coordinating the Engagement
Logistics
Work Plan
Preliminary Work Plan Example
Foreign Corrupt Practices Act
Internal-Accounting-Control Provisions
Antibribery Provisions
Record-Keeping Provisions
Additional Considerations
Planning the Engagement
Accounting Issues
Knowledge of Corporate Personnel
Understand Company Policy
Understand the Company's Network
Local Licenses
Schemes and Other Matters
Personal Considerations
Money Laundering
Relationship between Fraud and Money Laundering
Placement
Layering
Integration
Varying Impact of Money Laundering on Companies
The Five-Point Program for AML-Regulated Businesses
Written Compliance Program
Minimum Standards of Customer Due Diligence
Activity Monitoring and Reporting
Training
Record Keeping
Impact of Money Laundering on Financial Statements
AML and Forensic Accounting Investigation
At the Request of the Regulator
At the Request of the Institution
Review of Transactions and Records
Decision Making
The AML Reporting Process
Corporate Culture and AML Corporate Governance
Legal Arrangements Lending Themselves to Anonymity
Potential Red Flags
Auditing and Money Laundering
Relationship between Fraud Investigation and AML
Other Dimensions of Forensic Accounting
Construction
Environmental Issues
Intellectual Property
Government Contracting
Insurance and Business Interruption
Marital Dissolution
Shareholder Litigation
Business Valuation
Business Combinations
Cybercrime
Looking Forward: The Future of Forensic Accounting Investigation
Evolving Discipline
New Tools
Education and Training: To Better Support the New Discipline
Regulation and Enforcement
Changing Corporate Environment
Internal Audit
Corporate Judgment Calls
Forensic Accounting Investigators Serving Individual Corporate Clients
Nonfinancial Operating Data
Responsibility for Disclosure and Validation of NFOD
Other Legal and Stock Exchange Requirements
Future of Forensic Accounting Investigation: Increasingly Global
Index