This document provides an overview of Benford's Law, which states that in many naturally occurring collections of numbers, the leading digit is likely to be small. It discusses how Benford's Law can be used by internal auditors to detect accounting fraud and errors. Specifically, it describes how the distribution of leading digits in datasets can be analyzed and compared to the expected distributions under Benford's Law using a chi-squared test. Examples are given showing how deviations from Benford's Law could indicate fraudulent behavior. The document concludes that applying Benford's Law is an effective way for internal auditors to help prevent financial fraud in a cost-efficient manner.
We have made a progress in some areas, especially in dealing with construction permits, and overall indicators are mainly better, so we are on 44th position in the world for ''ease of doing business''
Final Initial Project Development With Discussioneasternman99
This document discusses using Benford's Law, a mathematical theory of leading digits, to analyze accounts payable transactions data from the District of Columbia's Department of Transportation for fiscal year 2013. Benford's Law predicts the distribution of leading digits in data sets and can help detect fraud by identifying anomalies. The document provides an overview of Benford's Law and its constraints, and presents a pilot analysis of the Department of Transportation disbursement data, which had 5,131 transactions totaling $376 million. Going forward, the methodology will be discussed with the Office of Integrity and Oversight to develop proper policies and procedures for using this fraud detection technique.
ARTICLE ON FORENSIC ACCOUNTING AND AUDITING, Anitha.pdfShwethaAcharya20
Forensic accounting involves thoroughly examining financial data to investigate fraud and misrepresentation. It employs accounting concepts and scientific tools to discover fraudulent acts. Forensic accountants work in teams to gather information, interview parties, verify facts, examine findings, compile reports, and sometimes testify in court. A forensic audit examines a company's financial records to uncover information that can be used in legal proceedings. It differs from a standard audit in that it specifically investigates fraud and may involve court appearances, while an audit determines if financial statements fairly represent a company's status.
This document provides an overview of the history of forensic accounting. It discusses how forensic accounting has evolved from its origins in the early 20th century to today. Key events that shaped the field include the capture of Al Capone for tax evasion in 1931, the establishment of the FBI's financial crimes unit in the 1960s, and the Enron scandal in the early 2000s which increased regulation and demand for forensic accountants. The document also outlines how forensic accounting education and the job responsibilities of forensic accountants have changed over time as the profession has developed.
Forensic accounting refers to accounting work performed for legal purposes, such as investigating potential fraud. Forensic accountants use auditing techniques as well as investigative skills to conduct detailed analyses of financial records to detect issues like embezzlement, insurance fraud, or tax evasion. Their work is often used in litigation to quantify economic damages or losses. Key areas forensic accountants work in include fraud investigation, bankruptcy, insurance claims, and criminal or civil court cases.
The document discusses how corporations can use data analytics to detect fraud through analyzing large volumes of transaction data. It describes three common techniques used: distribution analysis, which looks for anomalies compared to statistical norms like Benford's Law; correlation analysis, which identifies anomalies in cause-and-effect relationships; and scenario testing, which simulates how fraudsters may exploit control weaknesses. While useful, data analytics techniques have limitations, and fighting fraud ultimately relies on increasing the probability of detecting abnormal transactions through these types of sophisticated analyses.
We have made a progress in some areas, especially in dealing with construction permits, and overall indicators are mainly better, so we are on 44th position in the world for ''ease of doing business''
Final Initial Project Development With Discussioneasternman99
This document discusses using Benford's Law, a mathematical theory of leading digits, to analyze accounts payable transactions data from the District of Columbia's Department of Transportation for fiscal year 2013. Benford's Law predicts the distribution of leading digits in data sets and can help detect fraud by identifying anomalies. The document provides an overview of Benford's Law and its constraints, and presents a pilot analysis of the Department of Transportation disbursement data, which had 5,131 transactions totaling $376 million. Going forward, the methodology will be discussed with the Office of Integrity and Oversight to develop proper policies and procedures for using this fraud detection technique.
ARTICLE ON FORENSIC ACCOUNTING AND AUDITING, Anitha.pdfShwethaAcharya20
Forensic accounting involves thoroughly examining financial data to investigate fraud and misrepresentation. It employs accounting concepts and scientific tools to discover fraudulent acts. Forensic accountants work in teams to gather information, interview parties, verify facts, examine findings, compile reports, and sometimes testify in court. A forensic audit examines a company's financial records to uncover information that can be used in legal proceedings. It differs from a standard audit in that it specifically investigates fraud and may involve court appearances, while an audit determines if financial statements fairly represent a company's status.
This document provides an overview of the history of forensic accounting. It discusses how forensic accounting has evolved from its origins in the early 20th century to today. Key events that shaped the field include the capture of Al Capone for tax evasion in 1931, the establishment of the FBI's financial crimes unit in the 1960s, and the Enron scandal in the early 2000s which increased regulation and demand for forensic accountants. The document also outlines how forensic accounting education and the job responsibilities of forensic accountants have changed over time as the profession has developed.
Forensic accounting refers to accounting work performed for legal purposes, such as investigating potential fraud. Forensic accountants use auditing techniques as well as investigative skills to conduct detailed analyses of financial records to detect issues like embezzlement, insurance fraud, or tax evasion. Their work is often used in litigation to quantify economic damages or losses. Key areas forensic accountants work in include fraud investigation, bankruptcy, insurance claims, and criminal or civil court cases.
The document discusses how corporations can use data analytics to detect fraud through analyzing large volumes of transaction data. It describes three common techniques used: distribution analysis, which looks for anomalies compared to statistical norms like Benford's Law; correlation analysis, which identifies anomalies in cause-and-effect relationships; and scenario testing, which simulates how fraudsters may exploit control weaknesses. While useful, data analytics techniques have limitations, and fighting fraud ultimately relies on increasing the probability of detecting abnormal transactions through these types of sophisticated analyses.
AN EVALUATION OF THE TRADITIONAL HISTORICAL COST BASIS OF ACCOUNTING IN PROVI...ECTIJ
This study is an evaluation of the traditional historical cost basis of accounting in providing value
relevance of accounting information relevant for decision making. a case for TelOne (Pvt) Ltd; Econet Wireless Zimbabwe Limited and Telecel Zimbabwe Limited. The main research question was, what are the strengths and weaknesses of the traditional historical cost basis of accounting in providing value relevance of accounting information relevant for decision making in the Telecommunication sector? Mixed approach was used in the study. The study sample size was 100 participants drawn from a population of 600. The questionnaire was used to collect data. The major finding was that, historic cost accounting has some noticeable weaknesses of failing to adequately disclose intellectual capital causing it to be viewed as a
method that provide inadequate information to stakeholders to enable them to make informed business decisions. The study recommended, fair value accounting method which recognizes intangible assets hence
enhance value relevance of accounting information to users.
The summary provides the following key points in 3 sentences:
Federal securities class action filings increased slightly in 2014 to 169 cases, remaining near historically low levels. Accounting-related lawsuits rose to 53 cases, driven by actions from regulators focusing on financial reporting and new tools to detect accounting irregularities. Emerging issues like cybercrime, new trading practices, and increased IPO and M&A activity may face increased regulatory scrutiny and become subjects of future securities litigation.
This document discusses forensic accounting and its importance in modern times. It provides an overview of forensic accounting, noting that it has existed for 200 years but its importance has grown with increased financial fraud and accounting scandals. It describes forensic accounting as encompassing both litigation support, such as calculating economic damages, and investigative accounting, like investigating employee theft. The document also outlines the typical processes involved in a forensic accounting investigation and some common scenarios where forensic accountants are retained.
Application of forensic accounting a tool for confidence in auditors’ reportsAlexander Decker
The document discusses the application of forensic accounting as a tool to build confidence in auditors' reports. It examines how forensic accounting can help detect issues like fraud, theft, bribery, and intentional misstatements. The study administered questionnaires to auditing firms, legal experts, and computer specialists. The results found that forensic accounting can significantly aid in litigation, quantifying losses from theft, detecting bribery and misstatements, and finding intentional misrepresentations to auditors. The document recommends mandatory forensic accounting training for accountants to produce more reliable audit reports.
Difference Between The Convergence Of Gaap With IFRSNicole Savoie
The document discusses the relationship between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). The IASB was formed in 1973 to develop international financial reporting standards (IFRS) and promote their global acceptance. The IASB works to improve and harmonize accounting standards globally. While the IASB has no direct authority over the FASB, the two boards work together cooperatively on convergence projects to reduce differences between IFRS and US GAAP. Adopting a single set of high-quality global standards would benefit stakeholders, though the US is cautious about full adoption of IFRS.
Employee fraud costs $300 billion annually in the US. Benford's Law, discovered by physicist Frank Benford, states that in naturally occurring numerical data, the leading digit is often not randomly distributed but follows a specific pattern. CIT Commercial Services utilizes Benford's Law analysis through IDEA software to examine client data like receivables and inventory for anomalies that could indicate fraud. Their analysis of large data sets using tests like the Last Two Digits Test has helped uncover material errors and fraud over the past 14 years.
This document outlines the chapters and contents of a project on forensic accounting. It includes 5 chapters: introduction, research methodology, literature review, data analysis/interpretation/presentation, and conclusions/suggestions. The introduction chapter defines forensic accounting and provides its history. The research methodology chapter describes the research approach, including primary and secondary data collection methods. The literature review chapter analyses existing research in the area. The data analysis chapter interprets and presents information on the historical perspective and nature of forensic accounting in India. The document provides an overview of the project's structure and contents.
This document is a project report on forensic accounting in India written by Sridevi H.V. It discusses the evolution and increasing importance of forensic accounting due to rising financial frauds. It outlines the objectives and methodology of the study. Forensic accounting involves detecting fraud and investigating accounting irregularities by looking beyond raw numbers and applying skills from accounting, auditing and law. It is useful for fraud examinations, dispute resolution, and other legal proceedings. However, forensic accountants in India face difficulties due to a lack of organized databases and sometimes unreasonable client expectations. The report examines the nature, role and techniques of forensic accounting as well as common types of financial frauds.
This document discusses fraud identification in forensic tax investigations and the rules of evidence. It provides an overview of forensic accounting concepts like tax audits and investigations. Key points include:
- Forensic accounting techniques can help reduce tax fraud by ensuring compliance with tax assessments and payments.
- A tax audit determines the level of fraud, willful default, or neglect by a taxpayer to obtain evidence for possible prosecution.
- A forensic accounting investigation gathers financial evidence relevant to alleged fraudulent activities by analyzing, interpreting, and presenting complex issues for legal proceedings.
- For a tax fraud to be determined, there must be a material false statement, knowledge it was false, reliance on the false statement by the government, and damages
Forensic Accountant: Reliability & admissibility as Expert WitnessNeeraj Aarora
The document discusses forensic accounting, including its definition, history, growth, and relevance in India. Forensic accounting utilizes accounting skills to investigate financial fraud and crimes, and expert forensic accountants can serve as expert witnesses in court. The document outlines several Indian laws where forensic accounting expertise could assist with investigations, such as the Companies Act, SEBI Act, Insurance Act, and Prevention of Money Laundering Act. However, forensic accounting is still emerging in India without dedicated training, unlike in Western countries where law enforcement agencies regularly utilize forensic accountants.
Forensic Accounting An Ex Ante Ex post Evaluation for Indiaijtsrd
"Growing incidences of financial fraud have given rise to the field of forensic accounting, a specialty practice area of accounting that focuses on uncovering fraud, among other things. A forensic accounting engagement often involves a detailed assessment of a company’s accounting system and processes to determine whether or not the numbers that are presented reflect reality. Unlike financial accounting, forensic accounting is not performed on a routine basis, so it’s important for the owner and the executive management team to know when a forensic accountant is needed or should be consulted Incidences of financial fraud have been growing in both frequency and sophistication among businesses in India. Sunil V. Mohite ""Forensic Accounting: An Ex-Ante - Ex-post Evaluation for India"" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Special Issue | Fostering Innovation, Integration and Inclusion Through Interdisciplinary Practices in Management , March 2019, URL: https://www.ijtsrd.com/papers/ijtsrd23099.pdf
Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/23099/forensic-accounting-an-ex-ante---ex-post-evaluation-for-india/sunil-v-mohite"
The document discusses the evolution and increasing importance of forensic accounting in Nigeria, as financial and economic crimes have become more complex and high-profile corporate scandals have eroded investor confidence. It provides background on forensic accounting as a specialized area of accounting that applies investigative skills to uncover fraud and assist in legal matters. The presentation also outlines some of the key aspects of forensic accounting such as the roles and qualifications of forensic accountants, common terminology, and how forensic accountants can support national development.
AN EVALUATION OF THE TRADITIONAL HISTORICAL COST BASIS OF ACCOUNTING IN PROVI...ectijjournal
This study is an evaluation of the traditional historical cost basis of accounting in providing value relevance of accounting information relevant for decision making. a case for TelOne (Pvt) Ltd; Econet Wireless Zimbabwe Limited and Telecel Zimbabwe Limited. The main research question was, what are the strengths and weaknesses of the traditional historical cost basis of accounting in providing value relevance of accounting information relevant for decision making in the Telecommunication sector? Mixed approach was used in the study. The study sample size was 100 participants drawn from a population of 600. The questionnaire was used to collect data. The major finding was that, historic cost accounting has some noticeable weaknesses of failing to adequately disclose intellectual capital causing it to be viewed as a method that provide inadequate information to stakeholders to enable them to make informed business decisions. The study recommended, fair value accounting method which recognizes intangible assets hence enhance value relevance of accounting information to users.
AN EVALUATION OF THE TRADITIONAL HISTORICAL COST BASIS OF ACCOUNTING IN PROVI...ECTIJ
This study is an evaluation of the traditional historical cost basis of accounting in providing value relevance of accounting information relevant for decision making. a case for TelOne (Pvt) Ltd; Econet Wireless Zimbabwe Limited and Telecel Zimbabwe Limited. The main research question was, what are the strengths and weaknesses of the traditional historical cost basis of accounting in providing value relevance of accounting information relevant for decision making in the Telecommunication sector? Mixed approach was used in the study. The study sample size was 100 participants drawn from a population of 600. The questionnaire was used to collect data. The major finding was that, historic cost accounting has some noticeable weaknesses of failing to adequately disclose intellectual capital causing it to be viewed as a method that provide inadequate information to stakeholders to enable them to make informed business decisions. The study recommended, fair value accounting method which recognizes intangible assets hence enhance value relevance of accounting information to users.
Forensic accounting is the application of accounting principles, theories and techniques to facts or hypotheses at issue in a legal dispute and encompasses every phase of litigation services. A forensic accountant uses accounting, auditing and investigative skills to assist in legal matters. This document provides an overview of forensic accounting and forensic auditing, including definitions, the differences between statutory and forensic audits, the approaches and techniques used in forensic audits and the functions of a forensic auditor.
Common Application Essay Prompt 1 ExampleLori Flasch
The document summarizes key aspects of the Semai culture, including their economic organization, social structure, gender roles, and practices of non-violence. The Semai are a semi-sedentary group in Malaysia who subsist through horticulture, fishing, hunting and trade. They live in small, isolated camps and grow crops like rice, millet and maize. The culture emphasizes egalitarian roles between men and women, with equal work and no gender-specific tasks. Conflict is resolved through non-violent means like opening one's arms or fleeing to deescalate attacks.
An examination of actual fraud cases with a focus on the auditor’s responsibi...Jesper Seehausen
This working paper examines actual fraud cases involving auditors in Denmark from 1909-2006 to understand the evolution of auditors' responsibilities related to fraud. The paper analyzes how court rulings and professional organizations in Denmark have established auditors' duties to detect potential fraud situations and respond appropriately. The analysis finds that auditors have never been criticized solely for failing to detect fraud, but rather for deficiencies in their audit work or failures to communicate issues. Over time, courts now consider fraud a normal business risk for which auditors must be proactively responsible in planning and conducting audits.
The impact of forensic accounting on fraud detectionAlexander Decker
This document summarizes a research study that examined the impact of forensic accounting on fraud detection in Nigerian firms. The study aimed to determine the relationship between fraud detection and forensic accounting. It reviewed definitions and types of forensic accounting and fraud. Data was collected through questionnaires administered to 15 firms and analyzed using descriptive statistics and regression analysis. The study revealed that the application of forensic accounting services affects the level of fraudulent activities in firms. It concluded that forensic accounting can help curb fraud in companies.
Forensic accounting is a specialized area of accounting that investigates financial fraud and white collar crimes. It has been used for nearly 200 years to assist courts and investigate matters like employee theft, securities fraud, and insurance fraud. Forensic accountants use techniques like cash flow analysis and net worth calculations to detect anomalies and trace missing funds. Their work supports litigation, investigations, and helps protect businesses, banks, and the public from financial deception and crime.
AN EVALUATION OF THE TRADITIONAL HISTORICAL COST BASIS OF ACCOUNTING IN PROVI...ECTIJ
This study is an evaluation of the traditional historical cost basis of accounting in providing value
relevance of accounting information relevant for decision making. a case for TelOne (Pvt) Ltd; Econet Wireless Zimbabwe Limited and Telecel Zimbabwe Limited. The main research question was, what are the strengths and weaknesses of the traditional historical cost basis of accounting in providing value relevance of accounting information relevant for decision making in the Telecommunication sector? Mixed approach was used in the study. The study sample size was 100 participants drawn from a population of 600. The questionnaire was used to collect data. The major finding was that, historic cost accounting has some noticeable weaknesses of failing to adequately disclose intellectual capital causing it to be viewed as a
method that provide inadequate information to stakeholders to enable them to make informed business decisions. The study recommended, fair value accounting method which recognizes intangible assets hence
enhance value relevance of accounting information to users.
The summary provides the following key points in 3 sentences:
Federal securities class action filings increased slightly in 2014 to 169 cases, remaining near historically low levels. Accounting-related lawsuits rose to 53 cases, driven by actions from regulators focusing on financial reporting and new tools to detect accounting irregularities. Emerging issues like cybercrime, new trading practices, and increased IPO and M&A activity may face increased regulatory scrutiny and become subjects of future securities litigation.
This document discusses forensic accounting and its importance in modern times. It provides an overview of forensic accounting, noting that it has existed for 200 years but its importance has grown with increased financial fraud and accounting scandals. It describes forensic accounting as encompassing both litigation support, such as calculating economic damages, and investigative accounting, like investigating employee theft. The document also outlines the typical processes involved in a forensic accounting investigation and some common scenarios where forensic accountants are retained.
Application of forensic accounting a tool for confidence in auditors’ reportsAlexander Decker
The document discusses the application of forensic accounting as a tool to build confidence in auditors' reports. It examines how forensic accounting can help detect issues like fraud, theft, bribery, and intentional misstatements. The study administered questionnaires to auditing firms, legal experts, and computer specialists. The results found that forensic accounting can significantly aid in litigation, quantifying losses from theft, detecting bribery and misstatements, and finding intentional misrepresentations to auditors. The document recommends mandatory forensic accounting training for accountants to produce more reliable audit reports.
Difference Between The Convergence Of Gaap With IFRSNicole Savoie
The document discusses the relationship between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). The IASB was formed in 1973 to develop international financial reporting standards (IFRS) and promote their global acceptance. The IASB works to improve and harmonize accounting standards globally. While the IASB has no direct authority over the FASB, the two boards work together cooperatively on convergence projects to reduce differences between IFRS and US GAAP. Adopting a single set of high-quality global standards would benefit stakeholders, though the US is cautious about full adoption of IFRS.
Employee fraud costs $300 billion annually in the US. Benford's Law, discovered by physicist Frank Benford, states that in naturally occurring numerical data, the leading digit is often not randomly distributed but follows a specific pattern. CIT Commercial Services utilizes Benford's Law analysis through IDEA software to examine client data like receivables and inventory for anomalies that could indicate fraud. Their analysis of large data sets using tests like the Last Two Digits Test has helped uncover material errors and fraud over the past 14 years.
This document outlines the chapters and contents of a project on forensic accounting. It includes 5 chapters: introduction, research methodology, literature review, data analysis/interpretation/presentation, and conclusions/suggestions. The introduction chapter defines forensic accounting and provides its history. The research methodology chapter describes the research approach, including primary and secondary data collection methods. The literature review chapter analyses existing research in the area. The data analysis chapter interprets and presents information on the historical perspective and nature of forensic accounting in India. The document provides an overview of the project's structure and contents.
This document is a project report on forensic accounting in India written by Sridevi H.V. It discusses the evolution and increasing importance of forensic accounting due to rising financial frauds. It outlines the objectives and methodology of the study. Forensic accounting involves detecting fraud and investigating accounting irregularities by looking beyond raw numbers and applying skills from accounting, auditing and law. It is useful for fraud examinations, dispute resolution, and other legal proceedings. However, forensic accountants in India face difficulties due to a lack of organized databases and sometimes unreasonable client expectations. The report examines the nature, role and techniques of forensic accounting as well as common types of financial frauds.
This document discusses fraud identification in forensic tax investigations and the rules of evidence. It provides an overview of forensic accounting concepts like tax audits and investigations. Key points include:
- Forensic accounting techniques can help reduce tax fraud by ensuring compliance with tax assessments and payments.
- A tax audit determines the level of fraud, willful default, or neglect by a taxpayer to obtain evidence for possible prosecution.
- A forensic accounting investigation gathers financial evidence relevant to alleged fraudulent activities by analyzing, interpreting, and presenting complex issues for legal proceedings.
- For a tax fraud to be determined, there must be a material false statement, knowledge it was false, reliance on the false statement by the government, and damages
Forensic Accountant: Reliability & admissibility as Expert WitnessNeeraj Aarora
The document discusses forensic accounting, including its definition, history, growth, and relevance in India. Forensic accounting utilizes accounting skills to investigate financial fraud and crimes, and expert forensic accountants can serve as expert witnesses in court. The document outlines several Indian laws where forensic accounting expertise could assist with investigations, such as the Companies Act, SEBI Act, Insurance Act, and Prevention of Money Laundering Act. However, forensic accounting is still emerging in India without dedicated training, unlike in Western countries where law enforcement agencies regularly utilize forensic accountants.
Forensic Accounting An Ex Ante Ex post Evaluation for Indiaijtsrd
"Growing incidences of financial fraud have given rise to the field of forensic accounting, a specialty practice area of accounting that focuses on uncovering fraud, among other things. A forensic accounting engagement often involves a detailed assessment of a company’s accounting system and processes to determine whether or not the numbers that are presented reflect reality. Unlike financial accounting, forensic accounting is not performed on a routine basis, so it’s important for the owner and the executive management team to know when a forensic accountant is needed or should be consulted Incidences of financial fraud have been growing in both frequency and sophistication among businesses in India. Sunil V. Mohite ""Forensic Accounting: An Ex-Ante - Ex-post Evaluation for India"" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Special Issue | Fostering Innovation, Integration and Inclusion Through Interdisciplinary Practices in Management , March 2019, URL: https://www.ijtsrd.com/papers/ijtsrd23099.pdf
Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/23099/forensic-accounting-an-ex-ante---ex-post-evaluation-for-india/sunil-v-mohite"
The document discusses the evolution and increasing importance of forensic accounting in Nigeria, as financial and economic crimes have become more complex and high-profile corporate scandals have eroded investor confidence. It provides background on forensic accounting as a specialized area of accounting that applies investigative skills to uncover fraud and assist in legal matters. The presentation also outlines some of the key aspects of forensic accounting such as the roles and qualifications of forensic accountants, common terminology, and how forensic accountants can support national development.
AN EVALUATION OF THE TRADITIONAL HISTORICAL COST BASIS OF ACCOUNTING IN PROVI...ectijjournal
This study is an evaluation of the traditional historical cost basis of accounting in providing value relevance of accounting information relevant for decision making. a case for TelOne (Pvt) Ltd; Econet Wireless Zimbabwe Limited and Telecel Zimbabwe Limited. The main research question was, what are the strengths and weaknesses of the traditional historical cost basis of accounting in providing value relevance of accounting information relevant for decision making in the Telecommunication sector? Mixed approach was used in the study. The study sample size was 100 participants drawn from a population of 600. The questionnaire was used to collect data. The major finding was that, historic cost accounting has some noticeable weaknesses of failing to adequately disclose intellectual capital causing it to be viewed as a method that provide inadequate information to stakeholders to enable them to make informed business decisions. The study recommended, fair value accounting method which recognizes intangible assets hence enhance value relevance of accounting information to users.
AN EVALUATION OF THE TRADITIONAL HISTORICAL COST BASIS OF ACCOUNTING IN PROVI...ECTIJ
This study is an evaluation of the traditional historical cost basis of accounting in providing value relevance of accounting information relevant for decision making. a case for TelOne (Pvt) Ltd; Econet Wireless Zimbabwe Limited and Telecel Zimbabwe Limited. The main research question was, what are the strengths and weaknesses of the traditional historical cost basis of accounting in providing value relevance of accounting information relevant for decision making in the Telecommunication sector? Mixed approach was used in the study. The study sample size was 100 participants drawn from a population of 600. The questionnaire was used to collect data. The major finding was that, historic cost accounting has some noticeable weaknesses of failing to adequately disclose intellectual capital causing it to be viewed as a method that provide inadequate information to stakeholders to enable them to make informed business decisions. The study recommended, fair value accounting method which recognizes intangible assets hence enhance value relevance of accounting information to users.
Forensic accounting is the application of accounting principles, theories and techniques to facts or hypotheses at issue in a legal dispute and encompasses every phase of litigation services. A forensic accountant uses accounting, auditing and investigative skills to assist in legal matters. This document provides an overview of forensic accounting and forensic auditing, including definitions, the differences between statutory and forensic audits, the approaches and techniques used in forensic audits and the functions of a forensic auditor.
Common Application Essay Prompt 1 ExampleLori Flasch
The document summarizes key aspects of the Semai culture, including their economic organization, social structure, gender roles, and practices of non-violence. The Semai are a semi-sedentary group in Malaysia who subsist through horticulture, fishing, hunting and trade. They live in small, isolated camps and grow crops like rice, millet and maize. The culture emphasizes egalitarian roles between men and women, with equal work and no gender-specific tasks. Conflict is resolved through non-violent means like opening one's arms or fleeing to deescalate attacks.
An examination of actual fraud cases with a focus on the auditor’s responsibi...Jesper Seehausen
This working paper examines actual fraud cases involving auditors in Denmark from 1909-2006 to understand the evolution of auditors' responsibilities related to fraud. The paper analyzes how court rulings and professional organizations in Denmark have established auditors' duties to detect potential fraud situations and respond appropriately. The analysis finds that auditors have never been criticized solely for failing to detect fraud, but rather for deficiencies in their audit work or failures to communicate issues. Over time, courts now consider fraud a normal business risk for which auditors must be proactively responsible in planning and conducting audits.
The impact of forensic accounting on fraud detectionAlexander Decker
This document summarizes a research study that examined the impact of forensic accounting on fraud detection in Nigerian firms. The study aimed to determine the relationship between fraud detection and forensic accounting. It reviewed definitions and types of forensic accounting and fraud. Data was collected through questionnaires administered to 15 firms and analyzed using descriptive statistics and regression analysis. The study revealed that the application of forensic accounting services affects the level of fraudulent activities in firms. It concluded that forensic accounting can help curb fraud in companies.
Forensic accounting is a specialized area of accounting that investigates financial fraud and white collar crimes. It has been used for nearly 200 years to assist courts and investigate matters like employee theft, securities fraud, and insurance fraud. Forensic accountants use techniques like cash flow analysis and net worth calculations to detect anomalies and trace missing funds. Their work supports litigation, investigations, and helps protect businesses, banks, and the public from financial deception and crime.
1. ....................................................................................
32 INTERNAL AUDITING NOVEMBER/DECEMBER 2014
F
raud and error detection in
accounting dates back to the
13th
century when Europe, a
monetary economy, instituted
the practice of bookkeeping.
Luca Pacioli, as a pioneer, built on these
foundations toward developing the dou-
ble-entry bookkeeping system late in the
14th
century, advancing the accuracy of
transaction recording. Since that time,
numerous continuous improvements
have materialized. However, despite
these improvements, recurring problems
continue to appear across a diverse set of
cases.1
According to Jim Powell, fraudulent
schemes date back to the time of Philip
Ford in the 1700s. At that time, Ford
embezzled large sums of money from
the William Penn estates through trans-
ference of funds by way of deed. This
overarching methodology continues
today and has contributed to increasing
instances of accounting fraud through-
out the years.2
Simultaneously, numer-
ous methods have been created to
discover and diagnose fraud, with an
aim of decreasing negative economic
impact, and has resulted in the creation
of forensic accounting. Internal auditing,
as a sub-genre of forensic accounting, relies
on systematic approaches to evaluate
and understand a company’s financial
statements and corresponding data. It
can also be used to “improve the effec-
tiveness of risk management, control,
and governance processes.”3
Applying
these procedures to a company’s finan-
BENFORD’SLAW
ANDAPPLICATIONS
FORTHE
INTERNAL
AUDITORJ ESS B ORON IC O , PETER H A R R IS , A N D FAY TEPLITSKY
JESS BORONICO is a professor a nd the dea n of the School of Ma na gement a t New York Institute of Technology. He
ha s written numerous pa pers in lea ding journa ls in the fields of qua ntita tive methods a nd business a dministra -
tion a nd holds a Ph.D. from the Wha rton School of Business a t The University of Pennsylva nia .
PETER HARRIS is a professor of a ccounting a t New York Institute of Technology. He ha s written numerous a rti-
cles in a ccounting, ta xa tion, a nd fina nce in lea ding journa ls, such a s Internal Auditing, Construction Account-
ing and Taxation, a nd the CPA Journal. Peter serves on severa l editoria l boa rds of Ca bell’s listed journa ls. Before
tea ching Peter worked a t Ernst a nd Young LLP.
FAY TEPLITSKY is a ba chelor of science undergra dua te student pursuing the 150 credits B.S.-M.B.A, CPA tra ck,
ma joring in a ccounting a t New York Institute of Technology. She serves a s a resea rch a ssista nt in the dea ns student
internship progra m a nd is student a mba ssa dor for the School of Ma na gement.
This article provides an overview of Benford’s Law, its many applications,
and specifically how it can be used by the internal auditor.
2. cial information provides an assurance
for investors and stakeholders that the
information is accurate and abides to
the SEC’s regulations.
The role of an internal auditor is sum-
marized by Crowder, who states that:
When financial relationships and ratios are
not consistent, there is always an internal or
external reason behind the deviation. The
internal auditor’s job is to determine whether
or not fraud is the reason for the deviation or
if some other force is affecting the ratios.…Such
analytical review procedures are especially
useful in detecting fraud in the purchasing, pay-
roll, and revenue areas.4
One particular methodology, and the
topic of this article, that can be mobi-
lized to interpret these deviations, is
Benford’s Law, which relies on the under-
lying use of the digit distribution across
figures in financial statements. Ben-
ford’s Law is robust, in that it can be
applied to many areas of internal audit-
ing, including:
• insurance claims;
• corporate income tax;
• employee expense reports;
• vendor invoices;
• accounts receivable;
• accounts payable; and
• fixed asset records.5
The use of Benford’s Law, while robust,
also has limitations. For example, Sin-
gleton notes that:
The IT auditor should be careful in extract-
ing a sample and then using Benford’s Law on
the sample. This is especially true for directed
samples in which the amount is part of the
factor allowing a transaction to be chosen as
the sample is not truly a random sample....The
IT auditor needs to remember to make sure that
the constraints (mathematical assumptions of
the theory) are compatible with the data set
to be tested.6
As noted, Benford’s Law relies on the
digit distribution found in random num-
bers. Specifically, Benford analyzed the
digit patterns of 20 random data sets
with a total of 20,229 records. His results
showed that 30.6 percent of the numbers
had a 1 as the first digit, 18.5 percent of
the numbers had a 2 as the first digit,
with continuously decreasing percentile
occurrences for increasingly large digits.
Exhibit 1 displays the expected fre-
quencies of these digits. Benford subse-
quently utilized a logarithmic basis as a
foundation for establishing a “signifi-
cant digit law” adapted from Hill. The law
can be applied to second and third dig-
its as well.
Durtschi, Hillison, and Pacini note
that “Benford’s analysis tests for fraud-
ulent transcations based on whether dig-
its appear in certain places in numbers
in the expected proportion.”7
But Nigrini further notes that “Ben-
ford’s Law is quite counterintuitive; peo-
ple do not naturally assume that some digits
occur more frequently.”8
One possible
33BENFORD’S LAW NOVEMBER/DECEMBER 2014 INTERNAL AUDITING
EXHIBIT 1 Benford’s Law: Expected Digital Frequencies
-------------------------- Position in Number ----------------------------
Digit 1st 2nd 3rd 4th
0 .11968 .10178 .10018
1 .30103 .11389 .10138 .10014
2 .17609 .10882 .10097 .10010
3 .12494 .10433 .10057 .10006
4 .09691 .10031 .10018 .10002
5 .07918 .09668 .09979 .09998
6 .06695 .09337 .09940 .09994
7 .05799 .09035 .09902 .09990
8 .05115 .08757 .09864 .09986
9 .04576 .08500 .09827 .09982
Note: The number 312 has three digits, with a 3 as the first digit, 1 as the second digit,
and a 2 as the third digit. The table indicates that under Benford's Law the expected
proportion of numbers with a first digit 3 is 0.12494 and the expected proportion of num-
bers with a third digit 2 is 0.10097.
.......................................................................................................................................................
3. 34 INTERNAL AUDITING NOVEMBER/DECEMBER 2014 BENFORD’S LAW
instance of this may be seen in United States
of America vs. Charlene Corley, where the
Department of Defense, if it employed
Benford’s Law, may have detected an exces-
sive occurrence of the digit 9, as the test
is designed to detect data errors.9
How to use Benford’s Law
Benford’s Law may be applied directly uti-
lizing an Excel worksheet or proprietary
software programs. Numerous how-to
videos and links also exist online and
include adopting this methodology to
large, random data sets.
Benford’s Law also mobilizes a num-
ber of different statistical tests such as
the chi-squared test. Simkin demon-
strates this procedure and describes the
chi-squared test as “a statistical test that
measures how well the data distribution
from a sample matches a hypothetical
distribution dictated by theory.”10
The rel-
evant test is usually referred to as a “good-
ness of fit” since it shows how close the
expected data distribution is to an actual
distribution. This test is an efficient
enactor when applied to Benford’s Law
since it could help assess risk for the dif-
ferences of distributions expressed from
the data’s results. This test also shows a
physical representation of the results
while being able to create barriers on
the ends of the curve to see the amount
of probability of risk of fraud there may
be with the given data that is being com-
pared with Benford’s Law. Exhibit 2 pro-
vides a snapshot of how expected versus
actual frequencies might appear as a
visual representation.
The robustness of Benford’s Law, and
its applicability to diverse portfolios of
data streams, has been supported in the
literature. For example, Nigrini provides
a significant portfolio of activities and
data records where Benford’s Law is
applicable. These include the interest
digit frequencies from 91,022 tax returns
for 1985 and 78,640 tax returns from
1988, the dollar amounts of 30,084
invoices approved for payment by an
NYSE-listed oil company, and 36,515
invoices approved for payments by a
software company.11
In 2005, Nigrini ana-
lyzed revenues from 4,792 quarterly earn-
ings in 2001 and 4,196 quarterly earnings
in 2002.12
These papers, among others,
support that as a general rule, financial
data within and across companies con-
forms reasonably well to Benford’s Law.
Internal auditing provides a landscape
of situations and processes that can ben-
efit from the use of Benford’s Law. Fisher
stated that “Benford’s Law has been used
in a large number of forensic applica-
tions, including voter fraud, Greece’s
effort to hide its debt, and determining
whether digital photographs have been
altered.”13
For example, the 1990’s Euro-
pean Union pressure to conform toward
stabilizing their economy affected macro-
economic data. Resulting analysis sug-
EXHIBIT 2 Chi-Squared Test Used with Benford’s Law
.......................................................................................................................................................
4. gested that Greece was noticed for sig-
nificant deviations from Benford’s Law.
“Greek macroeconomic data is further
from the Benford distribution than that
of any other EU member state. Perhaps
Benford analysis could have kept Greece
out of the Eurozone, although it seems
likely that politics would have won out
over statistics.”14
This is only a handful
of the situations where Benford’s Law
has been used to detect fraud. Browne
describes Benford’s Law as a “tool for
pointing suspicion at frauds, embezzlers,
tax evaders, sloppy accountants and even
computer bugs.”15
Illustrative examples
Provided next are two illustrative exam-
ples demonstrating the foundations of Ben-
ford’s Law.
Example one
Evidence of fraudulent activities? Pro-
vided in Exhibit 3 are sales to customers
from two separate business entities. Using
Benford’s Law, we will evaluate the pres-
ence of possible fraudulent activities or,
in this case, the possibility of false sales
reports.
Results. Benford’s Law can be applied
as an analytical review procedure (ARP)
and can add to the scope of an internal
audit rather easily. In this situation, we
see that in case one, most of the sales are
skewed to a first digit beginning with 6,
7, 8, and 9 (70 percent of the time), while
only 10 percent begin with 1. This is a sit-
uation that should draw the internal audi-
tor to the possibility of fraud and will add
to inquiries and to the scope of work.
In the second case, the sales corre-
spond closely to Benford’s Law, sug-
gesting that there is no fraud. Note,
however, that Benford’s Law, as well as
the use of other ARPs, is a first step in
the internal audit scope, and this alone
does not guarantee the presence or non-
presence of fraud. Follow-up work by
the internal auditor will be required to
correctly make this determination.
Example two
Suppose that a company requires a dual
signature on any check written above
$1,000. Below this amount, the controller
signs the checks solely. The internal audi-
tor may want to test for evidence of fraud-
ulent checks written and cashed by the
controller by testing the distribution of
35BENFORD’S LAW NOVEMBER/DECEMBER 2014 INTERNAL AUDITING
EXHIBIT 3 Sales to Customers
Sales Revenue to Customers X (In $)
Case 1 Case 2
1-1,014 1,844
2- 9,944 1,082
3- 8,722 2,817
4- 7,211 4,431
5- 6,301 6,742
6- 8,414 9,617
7- 9,212 1,462
8- 7,814 2,304
9- 4,423 3,273
10-3,811 3,920
Distribution by first unit
Case 1 2 3 4 5 6 7 8 9 Total
1 10% 0% 10% 10% 0% 10% 20% 20% 20% 100%
2 30% 20% 20% 10% 0% 10% 0% 0% 10% 100%
.......................................................................................................................................................
5. outstanding checks. If, for example, we
find that many checks written begin with
a nine, a strong possibility exists that
the controller is embezzling money. This
is a red-flag item for the internal audit
team. As an example, the controller may
be embezzling funds by writing and sign-
ing checks just below the $1,000 thresh-
old ($999, $995, and $900 for example).
Conclusion
Benford’s Law is an effective way, when
coupled with other procedures, to assist
in the detection and prevention of finan-
cial fraud.When coupled with its cost effi-
ciency, it is recommended that internal
auditors apply Benford’s Law as part of
their analytical review procedures in
every engagement. This provides the inter-
nal auditor with the proportion/digital dis-
tribution of the expected first digit
numbers, which can then be compared
with actual results, support follow-up
work in the case of a material deviation,
and ultimately lead to the detection and/or
prevention of fraudulent activities.
This article provides an overview of
Benford’s Law, its many applications,
and specifically how it can be used by the
internal auditor. Many examples have
been used whereby Benford’s Law is uti-
lized by the internal audit team. In clos-
ing, while fraudulent activities cannot be
eliminated, Benford’s applications will con-
tinue to undoubtedly decrease these
occurrences, resulting in a savings of
financial costs to the worldwide busi-
ness entities and economies. n
NOTES
1
Lee, G.A., The coming of age of doubly entry: The
Giovanni Farolfi ledger of 1299–1300, Accounting
Historians Journal 4, no. 2 (1977): 79–95. Available
at: http://umiss.lib.olemiss.edu:82/record=b1000778.
2
Powell, J., “William Penn, America’s first great
champion for liberty and peace,” The Freeman. Avail-
able at: http://www.quaker.org/wmpenn.html.
3
“About the profession,” The Institute of Internal
Auditors. Available at: https://na.theiia.org/about-
us/about-ia/Pages/about-the-profession.aspx.
4
Crowder, N., Fraud detection techniques, The Inter-
nal Auditor 54, no. 2 (1997): 17–20.
5
“Auditor’s guide to tests using Benford’s Law,” EZ-
R Stats, LLC. Available at: http://www.ezrstats
.com/doc/Auditors_Guide_to_Tests_using_Ben-
fords_Law.pdf.
6
Singleton, T.W., Understanding and applying Ben-
ford’s Law, ISACA Journal 3 (2011). Available at:
http://www.isaca.org/Journal/Past-Issues/2011/Vol-
ume-3/Pages/Understanding-and-Applying-Benfords-
Law.aspx.
7
Durtschi, C., Hillison, W., and Pacini, C., The effec-
tive use of Benford’s Law to assist in detecting
fraud in accounting data, Journal of Forensic Account-
ing 5 (2004): 17–34. Available at: http://faculty.usfsp
.edu/gkearns/Articles_Fraud/Benford%20Analy-
sis%20Article.pdf.
8
Nigrini, M.J., I’ve got your number: How a mathe-
matical phenomenon can help CPAs uncover fraud
and other irregularities, Journal Of Accountancy
(1999). Available at: http://www.journalofaccoun-
tancy.com/issues/1999/may/nigrini.
9
Ibid.
10
Simkin, M.G., Using spreadsheets and Benford’s
Law to test accounting data, ISACA Journal 1
(2010). Available at: http://www.isaca.org/Jour-
nal/Past-Issues/2010/Volume-1/Pages/Using-Spread-
sheets-and-Benford-s-Law-to-Test-Accounting-Data1
.aspx.
11
Nigrini, M.J. and Mittermaier, L.J., “The use of Ben-
ford’s Law as an aid in analytical procedures,” Audit-
ing: A Journal of Practice and Theory 2, no. 16
(1997): 52–67; Drake, P.D. and Nigrini, P.D., “Com-
puter assisted analytical procedures using Ben-
ford’s Law,” Journal of Accounting Education 18
(2000): 127–146.
12
Nigrini, M.J., “An assessment of the change in the
incidence of earnings management around the
Enron–Andersen episode,” Review of Accounting
& Finance 4, no. 1 (2005): 92–110.
13
Fisher, D., The simple mathematical law that finan-
cial fraudsters can’t beat, Forbes (May 30, 2011).
Available at: http://www.forbes.com/sites/daniel
fisher/2014/05/30/the-simple-mathematical-law-
that-financial-fraudsters-cant-beat/.
14
Harford, T., Benford’s Law and the eurozone crisis,
Business Life (Nov 25, 2011). Available at: http://busi-
nesslife.ba.com/Ideas/Economics/would-benfords-
law-have-caught-out-greece.html.
15
Browne, M.W., Benford’s Law, New York Times
(Aug 4, 1998). Available at: http://www.edn.com/
electronics-blogs/anablog/4399245/Benford-s-Law.
36 INTERNAL AUDITING NOVEMBER/DECEMBER 2014 BENFORD’S LAW
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