Forensic Accounting Essay examples

Submitted By felipruiza
Words: 2043
Pages: 9

Forensic Accounting
ACC303
Assignment 1

Question 1:

Defining fraud as a whole, according to the Australian Institute if Criminology is everything that involves the use of dishonest or deceitful conduct in order to acquire an unfair advantage over someone else. This definition is found also in the research made in the parliament at New South Wales state of Victoria, Australia (Lozusic, 2003).

In other words, fraud is the act to commit anything unjust in obtaining advantage over the others by ignoring the law and hiding the important facts that should be taken in scene. Meanwhile, fraud has many specific definitions that can take place into different circumstances, therefore, the only circumstances that this paper work it’s going to take will be the fraud that can be related to the accountants and auditors. Thus, the two types of fraud in this case would be employee fraud or misappropriation of assets and financial statement fraud (Pany and Whittington, 2002)

First of all, a fraud differs from an error when the mistakes made where unintentional (error) and has no interest at all in committing them in disclosures within the financial statements. Whereas fraud, is the intentional conduct of committing omissions in the financial statement and this relates to the last (could be by misappropriation of assets or financial statements fraud) (Pany and Whittington 2002)

One example of misappropriation of assets can be found when a company has the intention to evaluate its assets and putting more value on them by changing the calculations of the depreciation on each. An asset will lose its value (PEI: Property, equipment, inventory) by the time goes by; the company will try to depreciate each asset with less than what it is suppose to, to bring into consideration that the value of the company is high and healthy.

An example for the financial statement fraud can be found when the company has hidden liabilities or debts to creditors. For example, a big debt of 500,000au were borrowed from a non-institutional company (a friend of the CEO) and the came to the agreement that they were not going to show that debt as a full amount in the financial statement if the company pays back with 2% more of the amount. Later, the company is found in big problems and investors that didn’t know about the big debt were found in losses as the company was in a very critical situation. Hiding information from the other users is fraud.

Internal control is important to identify fraud or avoid it at the time. The auditor in the first case has to analyze the value of the assets from the past, then, recalculate each asset’s value with the proper calculation for depreciation. This is considered to be an assertion of valuation of assets and re-performance as audit evidence. For the second case, the auditor should check all the documents to see where the company got the money from, and how did it got it, or by confirming with third parties where was that money from. As the second case say that the company was not showing the full amount, accuracy of the amount needs to be required as the assertion for this liability.

Question 2

Procedures that test the out of period liabilities are the ones that find if the liabilities were hidden or intentionally delayed for a purpose, to be in the accounts payable for the correct period which the liability occurred.

Assertions and audit evidence are important to get to do the procedures. There are two forms of assertions use for an auditor; balance assertions and transaction assertion. The first one refers to the assets and liabilities, and the second one refers to income and expenses.

As the question is telling to identify the procedures that they are typically used in liabilities, therefore balance assertions must be taken into practice. The out of period liabilities are by nature liabilities that they were recorded or has not been recorded. The first procedure to test the out of period