Saturday, September 1, 2012


 Author:M. Azim Ulfati


 
Introduction
In this paper I will determine the most important five (5) skills that a forensic accountant needs to possess and evaluate the need for each skill. I will make sure to include discussion regarding the relationship between the skill and its application to business operations.
I will describe the role of a forensic accountant within a courtroom environment, then I will analyze the legal responsibility a forensic accountant has while providing service to a business and lastly I am going to research two (2) cases where forensics accountants have provided vital evidence in a case and will summarize the cases and the importance of the forensic accountants’ role during each case.


Determine the most important five (5) skills that a forensic accountant needs to possess and evaluate the need for each skill. Be sure to include discussion regarding the relationship between the skill and its application to business operations.
I believe it is very important to know that forensic accounting is the specialty practice area of accountancy that denotes engagements which result from real or anticipated disputes or litigation.
"Forensic" means "suitable for use in a court of law", and it is to that standard and potential outcome that forensic accountants generally have to work.
Forensic accountants also referred to as forensic auditors or investigative auditors, often have to give expert evidence at the eventual trial.
Every accountant requires some types of skills in order to function in the marketplace. The most important five skills that a forensic accountant needs are analytical characteristics, investigative, communication, interpersonal, ethical, auditing skills and specific credential skills.
Forensic accounting is on the hot list of client services now days. In order to be a productive accountant, it does not have to be translated in to being an effective forensic accountant. Being an effective forensic accountant needs the professional to have a broad spectrum of skills and knowledge.
Forensic accounting services usually includes the following:
*The application of specialized knowledge and investigative skills possessed by CPAs
*Collecting, analyzing and evaluating evidential matter
*Interpreting and communicating findings in the courtroom, boardroom or other legal/administrative venue.
And the fundamental forensic knowledge includes:
*   Professional responsibilities and practice management
* Laws, courts and dispute resolution
* Planning and preparation
* Information collecting and preservation like documents, interviews/interrogations, electronic data and so on) (Charles, Ramona & Suzanne)
* Discovery
* Reporting, experts and testimony (Charles, Ramona & Suzanne)
            Foundational to the forensic accountant’s fundamental forensic knowledge and specialized forensic knowledge are the “CPA Core Skills.” From a traditional accounting perspective, these core skills include education, training and experience with generally accepted accounting principles and its application, attest services, tax, general knowledge of business law and ethics for CPAs. Based on the ideas of a forensic accountant there may be not the same set of core skills that are needed.
 (Charles, Ramona & Suzanne)
            Relevant to the forensic accountant and forensic accounting as a niche practice area, some of the areas explored were:
*Traits and characteristics
*Core skills
*Enhanced skills
*Specialties needed and certifications
*Areas for improvement (Charles, Ramona & Suzanne)
We must know that there seems to be some gap between conceiving of the skills and the knowledge needed and as well as the ability for transferring those skills in the practice of forensic accounting.
 As more professionals enter the niche practice area of forensic accounting and universities develop curriculum to address this growing need, it is mandatory that there be a fantastic understanding of perceptions and expectations with regard to this new breed of accountant — the forensic accountant.
To accomplish, the analytical skills and characteristic is the “Inquisitive” trait and the “Persistent” trait. These skills and traits suggest the requirement for the forensic accountant to search out all related info for an engagement, as well as be able to process it and solve the problem at hand.
The need to be analytical in a forensic accounting engagement may be the initial and most important overall characteristic, without which other traits and abilities would be difficult to develop.
Analytical proficiency was important attributes for the forensic accountant. Prior to that study proposed that analytical abilities are important in the practice of forensic accounting. In sum, these results provide additional weight to the assertion that analytical characteristics are critical to the forensic accountant’s ability to provide value-added services in engagements calling for more than simply auditing skills and problem-solving abilities.
Core skills indicate that communication skills are the important keys to a better forensic accountant. “Effective oral communicator” most frequently on average, reflecting the need to effectively represent verbally a position in a court of law. CPAs concurred by choosing it third most frequently in the Top 5 and “Effective written communicator” second, perhaps indicating the importance of preparing internal reports and documentation for review by colleagues, or the submission of a written report to the court.
For instance, in investigative cases, attorneys are using forensic accountants most frequently in many cases that involve financial statements, economic damages and fraud. CPAs that are forensic accountants also are frequently involved in these same kinds of engagements, with valuation work engaged in somewhat more frequently than financial statement misrepresentations.
The computer technology reflect the relative “newness” of the need for this kind of expertise in the forensic accounting field. CPAs in practice often partner with others proficient in technology. The AICPA does present specialized technology credentials such as the Certified Information Technology Professional. The higher replies rates by those who wants forensic accounting services versus those who supply those services may show a strategic niche for additional practice development. Additionally, educators are increasingly calling for the incorporation of technology into the forensic accounting curricula. (Charles, Ramona & Suzanne)
Interpersonal and auditing skills may be important, but the orientation toward problem solving appears to be more important to the success or effectiveness of the forensic accountant. However, the forced choice of only five core skills could have affected the rankings. An extended study that separates out the ranking of more technical versus people with interpersonal and auditing skills could be useful. Ethical skills according to the corporate culture are very important for the success and daily work of forensic accountants.
Accounting professionals do important responsibilities beyond preparing financial statements. In a more critical role, they help managers interpret the statements by comparing data about the firm's current activities to those for previous periods and to results posted by other companies in the industry. Ratio analysis is one of the most commonly used tools for measuring a firm's liquidity, profitability, and reliance on debt financing, as well as the effectiveness of management's resource utilization. (Bonnie, 2012)
Ratios are classified based on their certain purposes. The four major categories of financial ratios are summarized in Table 15.1. The ratios for Diane’s Java for the 2011 and 2012 are shown in table 15.2 according to Bonnie Kurtz, contemporary business. (Bonnie, 2012)
CATEGORY
RATIO
DESCRIPTION
Liquidity ratios
Current ratio
Current assets divided by current liabilities

Quick (acidtest) ratio
Current assets (minus inventory) divided by current liabilities
Efficiency ratios
Inventory turnover
Cost of goods sold divided by average inventory

Receivables turnover
Credit sales divided by average accounts receivable

Total asset turnover
Revenue or sales divided by average total assets
Leverage ratios
Debt ratio
Total liabilities divided by total assets

Long term debt to equity
Longterm debt divided by owners’ equity
Profitability ratios
Gross profit margin
Gross profit divided by revenue or sales

Net profit margin
Net profit divided by revenue or sales

Return on equity
Net profit divided by average owners’ equity
(Bonnie, 2012)



Table 15.2   
Financial Ratios for Diane's Java
FINANCIAL RATIO
2012 FISCAL YEAR
2011 FISCAL YEAR
Current ratio
2.58
2.25
Quick ratio
1.50
1.25
Inventory turnover
5.13
5.03
Receivables turnover
19.60
19.32
Total asset turnover
2.15
2.15
Debt ratio
35.6%
39.0%
Longterm debt to equity
19.4%
22.4%
Gross profit margin
40.0%
38.0%
Net profit margin
11.1%
10.0%
Return on equity
37.9%
36.6%
(Bonnie, 2012)
Describe the role of a forensic accountant within a courtroom environment.
It is very important to know the role of forensic accountants within a court environment. As we all know that there are many large-scale corporate scandals in the United States of America and it is growing in the field of forensic accounting. These forensic accountants are used not only by law enforcement forces but also corporate organizations.
Forensic accounting is the application of the skills and training of a chartered accountant to investigations, disputes and other reviews, the result of which could end up in a court of law.
Fraud, by its very nature, is hidden in the accounting systems of organizations and therefore a forensic accountant is usually required to unravel the transaction history and reveal what has actually occurred. ("Pwc," )
As part of this, the forensic accountant is often called upon to quantify the value of the loss experienced by an organization or individual. Any lost funds are traced from bank account to bank account to identify where the money (or other assets) have ended up before working with a legal team to secure the freezing and recovery of the funds or assets. ("Pwc," )
In cases of financial statement fraud, as seen, it is not so much the case of cash being stolen, but company losses or liabilities being hidden (or assets being overstated) by false accounting in the financial statements and records. The forensic accountant’s role is therefore to understand the accounting records and show the true nature of the transactions being recorded.
Similarly forensic accountants are a key part in the investigation of shareholder or director disputes, and insurance claims.
Ultimately, in all cases, the key skill of the forensic accountant is in communicating complex financial transactions or information in a succinct manner using pictures, graphs and language readily understandable by non-accountants and in particular the legal profession, the judiciary, and juries.

I would like to talk about the Fraud investigations that how the forensic accountants plays its role and finds evidence within the court environment.

If a company or corporation suspects fraudulent financial reporting or misappropriation of assets, investigators start investigation to determine the existence, nature and extent of the fraud. They also work with clients to identify the perpetrator and, where possible, recover the loss. When efforts have been made to conceal evidence, members of forensic accountant technology team recover and process the digital evidence using sophisticated software. Additionally, they examine current processes and procedures and recommend controls to prevent or reduce the possibility of vendor/supplier fraud. In all of these circumstances, they provide supporting documents and are available to serve as expert witnesses in civil and criminal litigation within the court environment. ("Rgl forensics," )
Let’s not remain unsaid that forensic accountants also play a very important role Fraud detection for finding evidence to the court.
Testifying is very important for attorneys and so is enhanced skills (Interviewing skills) for the forensic accountants. It needs both oral communication and thinking. Interviewing is highly ranked than fraud detection. It is good to know that knowledge of relevant professional standards require the importance of interviewing in order to obtain information about a case.
The image of the forensic accountant as a detective again is suggested by this finding. Attorneys would not perceive interviewing skills as essential for the forensic accountant to be productive. The requirement for a forensic accountant to conduct or attend in an interview may be based on the engagement.
Fraud detection, considered by many to be one of the most important aspects of forensic accounting and this finding places fraud detection among the more important activities in the forensic accounting field. Academics were entirely consistent about their view that fraud detection is the most critical enhanced skill and activity in forensic accounting. These results may also show that academics view the field of forensic accounting through a narrower lens or think “forensic accounting” is fraud detection rather than through a wider lens that sees the breadth of specialized forensic accounting services available.
Analyze the legal responsibility a forensic accountant has while providing service to a business.
A forensic accountant is a person typically hired by large firms, regulatory authorities, law professionals to help disentangle crimes through their  crime related investigations , fraud , litigation support services from the accounting perspective
Forensic accountants are responsible in the society to prevent, detect, investigate cases of white-collar crime, bank fraud, terrorist funding and computer scams. ("Going concern," )
While providing services to a business forensic accountants also not only help to ensure economical security in two ways but also help law enforcement forces create a safe environment. First, they detect company losses and fraud early in the society. This alone has saved many companies large sums of money. By doing this, stock investors are able to feel more secure about the funds they are investing.
Secondly, job security can easily be found within the career field of a forensic accountant. As long as there is money being handled, the need for forensic accountants will continue to grow. Its recent popularity has created thousands of jobs that were not present before. This, too, helps to secure the economy in the environment.
Forensic accountants deal with financial records and evidence that is used for legal purposes. It is used to detect fraudulent activity such as embezzlement, money laundering, insurance fraud, and tax evasion. It has also been used to uncover hidden assets of couples undergoing divorce and pinpointing drug trafficking.
Forensic accountants use math and investigative skills to gather and analyze financial information. The findings are used to detect suspicious activity within businesses and among individuals. This evidence is often used in a court of law to prosecute offenders. They are often used as expert witnesses in legal proceedings to help the courts make a just legal decision against fraudulent and criminal offenders.
Research two (2) cases where forensics accountants have provided vital evidence in a case. Summarize the cases and the importance of the forensic accountants’ role during each case.
I believe it important to know that there are many high profile cases of white collar crime, bank fraud, terrorist funding and computer scams where the forensic accountants have provided vital evidence.
Case Study 1: Divorce
The issue:
Based on a true story of an American colleague of mine Washingon whom I met on 2010 in Afghanistan.  He had some hidden assets that his wife was not sure for many years and after many years, his wife found out that Washington has some family financial assets protected. Thus their marriage relationship leads to divorce. Here the attorney made a good use of forensic accountants to get all they can for their customer. The forensics accountants put their skills to work for clients in divorce proceedings so the wife can take some of that hidden assets that thought was protected somewhere.

The Role of Forensic Accounting:

In this case the forensic accountant was hired to find out and uncover the hidden assets. The Forensic accountant uncovered that the funds were transferred to the family of Washington in Africa by reading and analyzing the documents and paperwork’s.

Case Study 2: Criminal Tax Fraud

The issue:
A friend of mine had few small family owned businesses. She provided inaccurate information to the government on her taxes. She tells the unreported story of one hundred and thirty thousand US Dollar to a friend of hers and her friend assisted the IRS in this criminal tax fraud. She continued her business for a year and within one year the Internal Revenue Services (IRS) criminal investigation division engaged in surveillance, failed to uncover any information or evidence that support the claim of criminal tax fraud.

The Role of Forensic Accounting:

Ultimately, the IRS found that the accused parties failed to withhold payroll taxes on a small amount of employee wages paid in cash. However, the IRS also claimed that the business owners had a large amount of unreported cash receipts.

The forensic accountants were used to calculate and provide evidence of the unreported income of the small family owned business that the IRS criminal investigator was making improper assumptions about the income and expenses of the business by relying on industry standards that did not apply to this company. They demonstrated why the IRS’s calculated numbers couldn’t possibly be accurate and presented alternate calculations that had a high degree of reliability. This alternate analysis was accepted by the government and saved time for further prosecution of the suspected girl.

Case Study 3: Forensic Accounting

The Issue:

Attempts by an international firm to reconcile a large customer account following the departure of a trusted employee revealed a number of transactions that the firm had no knowledge of. Further investigation disclosed the former employee had set up fictitious loans from which he had benefited. (Linda & Ehow)

The Role of Forensic Accounting:

Forensic accountants were asked by the firm to assist their legal advisors to prepare a case against the former employee who had misappropriated over $1 million in funds. They prepared evidence that documented each step in the numerous transactions and prepared a summary of what the funds had been used for. (Linda & Ehow)

Outcome:

Their evidence was presented to the legal advisors for the defendants and was accepted without dispute. It was also used for settlement negotiations for recovery action and to support a complaint to the Serious Fraud Office for prosecution of the case. Their work was used to review and strengthen a number of internal controls. (Linda & Ehow)
Conclusions
The main objective of this research was to gain a clearer understanding of the the most important five (5) skills that a forensic accountant needs to possess and evaluate the need for each skill for the varied investigative matters for which they are retained.
This research study and the results revealed that analytical characteristics remain the foremost skill and trait that forensic accountants are expected to possess. The results also revealed that communication skills, the ability to simplify the complex, and the ability to present opinions in a legal setting are critical to the effectiveness of the forensic accountant. There is also a need for the forensic accountant to be able to look beyond the analytical details and see the big picture –- to start with the goal in mind.
What this study brings to light is the understanding that there are certain responsibilities and enhanced skills that forensic accountants need to possess for the types of projects on which they are engaged to work. Along with the increased demand for forensic accounting services, the study showed that the marketplace expects the forensic accountant to possess specific core skills as well as relevant credentials or certifications.
We found out that the role of a forensic accountant within a courtroom environment is very vital for providing evidence on fraud, investigating allegations of fraud, theft and corruption, suspicious transaction analysis – detecting fraud where no prior suspicion exists and where there may be large volumes of transactions, training in fraud prevention, detection and investigation, reconstructing financial records, liaison with law enforcement and assistance with civil litigation, allegations of, or suspected Money-laundering, asset tracing,
Background checking – using publicly available information, visual analysis software to establish and prove associations between individuals.
We also analyzed the legal responsibility that a forensic accountant has while providing service to a business. And eventually research two (2) cases where forensics accountants have provided vital evidence in cases and evidence was presented to the legal advisors for the defendants and was accepted without dispute. It was also used for settlement negotiations for recovery action and to support a complaint to the Serious Fraud Office for prosecution of the case.
References
Charles, D., Ramona, F., & Suzanne, O. (n.d.). Characteristics and skills of the forensic accountant. Introduction,
(n.d.). Rgl forensics. Fraud investigations, Retrieved from http://www.rgl.com/services/xprServiceDetailRGL.aspx?xpST=ServiceDetail&service=92
Linda, R., & Ehow, (n.d.). Famous forensic accounting cases. Forensic Accounting, Retrieved from http://www.ehow.com/about_4815500_famous-forensic-accounting-cases.html
(n.d.). Pwc. Forensic accounting, Retrieved from http://www.pwc.co.nz/forensic-services/forensic-accounting/
(n.d.). Going concern. What are your questions for a Forensic Accounting Partner?, Retrieved from http://goingconcern.com/search/site/What are your questions for a Forensic Accounting Partner?
Rick, R. (2010). Accountants who focus on fraud. Retrieved from http://www.jsonline.com/business/82560417.html
Bonnie, K. (2012). Chapter 15. understanding accounting and financial statements. Forensic Accountants: Fraud Busters, Retrieved from https://blackboard.strayer.edu/webapps/portal/frameset.jsp?tab_tab_group_id=_168_1&url=/webapps/blackboard/execute/launcher?type=Course&id=_74816_1&url=

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