With recent reports showing that there has been a major increase in the number of accounting fraud cases, it is important to understand the concept of forensic accounting. Accounting fraud is defined as fraudulent activity that involves the violation of several federal or state securities laws, and the most common of which are those dealing with stock trading, futures, options, and commodity trading.
Forensic accounting is the collection of reliable data relating to financial transactions that have taken place. The purpose of this is to determine whether a given transaction was a valid one or not. However, the accuracy of the calculation may also be the key to the evaluation.
There are two aspects that are involved in the process: due diligence requirements and statistical analysis. Due diligence is mainly concerned with proving or disproving the authenticity of the transaction. Statistical analysis involves the analysis of the data and determine if the transaction was a valid one or not.
Another aspect of accounting fraud that is under investigation is illegal gains from selling stolen funds. This involves tracing the funds by using the client’s name. This is primarily used in frauds related to sales and leasing of assets.
In the cases that involve illicit gains, the actual size of the gain may be very small; however, the relative size of the gains is significant. Also, it may be very difficult to trace the gains since the transaction may have occurred between offshore accounts and the actual account holder may not know where his money is.
Another aspect of accounting fraud that is under scrutiny is online forex transactions. These involve manipulating the foreign exchange market by removing or adding data on the basis of the price levels in certain markets.
Since the website of the accounting firms are not always available, this has led to problems in the tracing of dubious transactions. It is difficult to establish how much the legitimate transaction is affected by fraudulent transactions.
Forensic accounting is being practiced in the United States. Some states have passed legislation to allow the government to take action against firms that break the law. There have been several cases of major accounting fraud cases against companies in the United States, and some of them are still pending.
The Accreditation Body for International Financial Reporting Standards (AIFRS) has demanded that firms who engage in this activity must meet certain standards. Some of these include having a fixed capital, reporting the full cost of borrowing, as well as carrying out pre-settlement checks before making an agreement.
Furthermore, the firms should also publish a balance sheet and profit and loss statement so that the public can monitor the firm’s performance. If there is any hint of fraud, the firm will not be able to continue. Thus, the government is looking for firms who have undergone proper and thorough financial audits.
Forensic accounting involves establishing the authenticity of the transactions. It is important to note that the costs and gains are only estimates and these may differ from what is reported.
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