7AUDIT INVESTIGATION AND FORENSIC ACCOUNTING

Audit Investigation and Forensic Accounting

Audit Investigation and Forensic Accounting

Introduction

Under contemporary conditions of business activity, securing reliable financial information through disclosing financial statements is considered a generally accepted objective. Numerous financial frauds from the past and the beginning of the century have seriously disrupted the trust of numerous users in financial information contained in financial statements. The greatest frauds of the users of financial information and primarily investors have been committed by presenting false i.e. falsified financial statements.

The responsibility of preventing, detecting and investigating frauds in financial statements lies in the hands of the management of an enterprise, but also in the hands of other control institutions and mechanisms. The system of internal control, internal auditing and audit committee are the key elements for preventing frauds that are created through property misuse as well as those that use financial statements as instruments of fraud. External auditing and forensic accounting perform retrospective control of financial data with the aim of detecting omissions and frauds and the aim of securing the reliability and credibility of financial statements.

In the last fifteen years, and increasingly today, the accountants that are called forensic investigators or forensic accountants have been engaged in detecting frauds in financial statements. Engaged by the management, owner or other users of financial statements, forensic accountants investigate and document financial frauds or inaccurate materially significant information. In order to perform the given tasks, forensic accountants must have solid knowledge of accounting and auditing, developed capability of good communication -verbal, written and investigative, independence and a considerable degree of knowledge about the usage of information technology in accounting and auditing procedures.

Accordingly, the paper will discuss frauds and omissions as the causes of inaccurate financial reporting, control mechanism and instructions responsible for investigating frauds and the place and role of forensic accountants in detecting frauds in financial statements.

FRAUDS AND OMISSIONS AS THE CAUSES OF INACCURACY OF FINANCIAL STATEMENTS

Inaccurate i.e. false financial statements provide incorrect picture of earning capacity and financial position of an enterprise. On the basis of such statements, the users, investors, first of all, make decisions about harmful consequences. Hence, there occurs the need of the broader accounting public and users of financial statements to base their decisions on the information that shows the real picture of financial and revenue position of an enterprise. It goes without saying that the real picture will not be obtained if the omissions and frauds appear in the process of preparing financial statements.

Frauds are acts that are undertaken with the intent of making financial statements incorrect and falsified. They are, as a rule, based on the following four elements: (1, p. 13)

false presentation of facts that has an important character

the awareness of a perpetrator about the falsity of presentation and manifestation of the total negligence of the truth

person that receives information treats it as reliable and relies on it in making decisions

owing to the above mentioned, the financial damage that the user of the information bears is created

Misrepresentation of facts that are of ...