Essentials of Forensic Accounting, Second Edition Chapter 1 Answers

Essentials of Forensic Accounting, Second Edition Chapter 1 Answers © 2019 Association of International Certified Professional Accountants. All rights reserved.1-1

Chapter 1: The Forensic Accounting

Profession Review Questions 1.a.Incorrect. Forensic accountants can provide advice on fraud risk mitigation.b.Incorrect. Some forensic accountants perform valuations of estates.c.Correct. Auditors, not forensic accountants, opine on the fairness of financial statements.d.Incorrect. Forensic accountants may provide information on the financial impact of mergers and acquisitions.

2.a.Incorrect. Although forensic accountants can serve as facilitators when performing dispute resolution services, they are not to serve as advocators when performing these serves.b.Correct. Forensic accountants may serve as mediators and arbitrators.c.Incorrect. Forensic accountants are not to serve as judge or jury.d.Answer (b) is correct.

3.a.Incorrect. Internal fraud schemes do not involve weaknesses in accounting (accounting is a language used to record and present economic events, meaning it is neither weak nor strong).b.Correct. The absence (or lack of) adequate internal controls provides an opportunity for internal fraud schemes to occur.c.Incorrect. Weaknesses in leadership are only tangentially related to internal fraud schemes and are not, absent other information, as correct as answer (b).d.Incorrect. Weaknesses in assessment can occur without resulting in internal fraud schemes; assessment can be thought of as a part of internal controls, and not necessarily the most important part with respect to reducing the likelihood of internal fraud schemes.

4.a.Incorrect. Knowledge in all areas listed in answers (a), (b), and (c) are important.b.Incorrect. Knowledge in all areas listed in answers (a), (b), and (c) are important.c.Incorrect. Knowledge in all areas listed in answers (a), (b), and (c) are important.d.Correct. Knowledge in all areas listed in answers (a), (b), and (c) is important for a forensic accountant.

5.a.Incorrect. The use of an expert witness is to assist the trier of fact.b.Correct. The use of an expert witness is to provide assistance to the court (that is, the trier of fact).Answer Manual for Essentials of Forensic Accounting 2nd Edition By Michae lCrain, William Hopwood, Carl Pacini, George Young (All Chapters 100% Original Verified, A+ Grade) 1 / 4

Essentials of Forensic Accounting, Second Edition Chapter 1 Answers © 2019 Association of International Certified Professional Accountants. All rights reserved. 1-2

• Incorrect. As an expert witness, the forensic accountant is not to be an advocate for

the defendant or plaintiff, but rather an advocate for his or her opinion.

• Incorrect. Use of an expert witness is not primarily to fulfill the court’s obligation of

due diligence.

6.

• Incorrect. For example, forensic accountants can also be engaged to perform

valuation engagements and to serve as mediators, arbitrators, and trustees.

• Correct.

7.

• Incorrect. A basic understanding of the rules of evidence will help forensic

accountants obtain and preserve necessary evidence.

• Incorrect. A basic understanding of the law applicable to conspiracy crimes helps the

forensic accountant determine the evidence needed to assist the prosecution or defense.

• Incorrect. A basic understanding of the court systems is necessary for the proper

preparation of cases (for example, precedent may be determined by certain case law that only pertains to the district in which the case is being tried and case law that is properly relied upon may be affected by the court to which the case is appealed).

• Correct. Enharmonic equivalents is a musical term that means that certain notes

(for example, f-sharp and g-flat) vibrate at the same rate of speed (and thus are equivalent) even though they are called by different names.

8.

• Incorrect. For example, forensic accounting sub-specialties include areas such as

investigative services, fraud risk management, expert consulting, expert testimony, and business valuation.

• Correct.

9.

• Incorrect. Auditors, not forensic accountants, use the auditing standards issued by the

AICPA because forensic accountants do not audit financial statements.

• Incorrect. Forensic accountants are not required to be independent of their clients

(they are, however, required to be objective when performing their duties).

• Correct. Auditors formulate opinions on financial statements whereas forensic

accountants formulate expert opinions on relevant issues before triers of fact.The term opinion used in the forensic accounting sense is a term of art in judicial guidelines on evidence and the law and differs from its use in the accounting literature.

• Incorrect. Whereas auditors are required to be licensed by the states in which they

practice, forensic accountants need not be licensed unless they use language (for example, a CPA) that is restricted by state law.Short Answer Questions

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Essentials of Forensic Accounting, Second Edition Chapter 1 Answers © 2019 Association of International Certified Professional Accountants. All rights reserved. 1-3

• The key elements of the definition of forensic accounting are: accounting, special skills,

law, evidential matter, and interpret and communicate.

• The word “forensic” means “pertaining to the law.”
• Forensic accounting is typically divided into litigation services and investigative services.
• Auditing and forensic accounting are governed by different standards: auditing is subject

to the attestation standards and auditing standards promulgated by the AICPA whereas forensic accounting is subject to the Statement on Standards for Consulting Services.While forensic accountants may engage in auditing work, it is performed for a purpose different from that of auditing, which is directed at giving an opinion on financial statements. Forensic accountants apply specialized skills that differ from those used by financial statement auditors.

• The term “forensic accounting” was coined by Maurice Peloubet in 1946 when he

published an article titled “Forensic Accounting—Its Place in Today’s Economy.”

• The knowledge and skills required in forensic accounting include accounting, auditing,

investigative, criminology and digital forensics, accounting information systems, risk analysis, communication, psychology, information technology, problem solving, and legal.

• Examples of types of financial cases that require investigation include any of the

following: Occupational fraud, determining the value of a spouse’s assets in a divorce case, investigating public corruption, tracing the sources of funds in a terrorism case, determining the extent of money laundering in narcotics trafficking cases, ascertaining the validity of specific representations made by the target of a corporate merger, and establishing the value of a pension fund.

• The difference between fact witnesses and expert witnesses is that fact witnesses are only

allowed to testify in court as to what they perceive through their senses (i.e., touch, hearing, sight, and smell). On the other hand, qualified experts are permitted to give opinions on relevant issues.

• The three management activities associated with fraud risk management activities include

fraud prevention, detection, and response.

• The special skills and knowledge required to conduct forensic accounting investigations

include how to structure and manage investigations, the types of evidence that may be collected, how to maintain the chain of custody, the legal rights of those under investigation, how to identify different types of fraud schemes, how to conduct interviews, and how to detect deception.

• Yes; communication skills are critical in forensic accounting. Forensic accountants who

serve as experts must write expert opinions that may be subject to intense scrutiny in depositions and cross-examinations. Oral communication is also very important: forensic accountants must be able to explain their opinions on direct examination, which requires effective presentation skills and the use of simple and convincing exhibits. 3 / 4

Essentials of Forensic Accounting, Second Edition Chapter 1 Answers © 2019 Association of International Certified Professional Accountants. All rights reserved. 1-4

• Areas in which forensic accountants can serve as expert consultants include fraud risk

mitigation, internal dispute resolution systems, the value of an estate, and the financial impact of bankruptcies, mergers, and or acquisitions. (Other answers, of course, are possible.)

• The names of organizations include (but are not limited to) any of the following: The

American Institute of Certified Accountants (AICPA), the American Society of Appraisers (ASA), the Association of Certified Fraud Examiners (ACFE), ISACA, and the National Association of Certified Valuators and Analysts (NACVA). The factors that play a role in determining the organizations to which they belong include education, training, experience, and areas of professional focus.

• The names of four credentials that are specific to the forensic practice of valuation are

any four of the following: Accredited in Business Valuation (ABV) of the American Institute of Certified Public Accountants (AICPA); Accredited Member (AM) and Accredited Senior Appraiser (ASA) of the American Society of Appraisers (ASA); and Certified Valuation Analyst (CVA), Accredited Valuation Analyst (AVA), and Accredited in Business Appraisal Review (ABAR) of the National Association of Certified Valuators and Analysts (NACVA) (Names of other credentials that are valuation-specific and which are not named in the chapter may be acceptable.)

• The skill of problem-solving important in forensic accounting because the cases on which

forensic accountants work are usually puzzles and mysteries that are to be solved.Forensic accountants must use critical-thinking skills when working on engagements that involve investigations and litigation and dispute resolution so that they can effectively match wits with perpetrators who, in many cases, are highly intelligent and seek to deceive.Brief Cases

• The ways to develop a career in forensic accounting can be numerous. A few examples

include seeking employment in a firm, such as a CPA firm, that offers forensic accounting services or in an internal auditing department of a company; joining professional organizations such as the AICPA and the ACFE (which has many local chapters); earning a graduate degree from a program that offers additional courses in forensic accounting; and earning credentials recognized within the forensic accounting community.

• The advantages of starting your career in each of the following ways can include:

• Staff member in a private forensic accounting firm: opportunity to benefit from the experience of those who have practiced in this area; continuing professional education offered or paid for by the firm; legal assistance if you are ever charged with sub-standard practice (as long as it is not reckless or fraudulent); and an understanding of the quality controls that a firm operates under in case you want to establish your own firm.• Employee in law enforcement: opportunity to benefit from the experience of those who have practiced in this area; training by the government or local law enforcement

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