Subject Guides: Accounting: Fraud & Forensic

Fraud & Forensic Resources

Report to the Nations on Occupational Fraud and Abuse
10th edition of the largest global study on occupational fraud. 2,690 real cases of occupational fraud. Data from 125 countries.
23 major industry categories included. Explores the costs, schemes, victims and perpetrators of fraud.
AICPA Code of Professional Conduct
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AICPA Code of Professional Conduct

A revised version of the Code of Professional Conduct is now available on a dynamic new online platform
International Federation of Accountants (IFAC) The International Ethics Standards Board for Accountants® (IESBA®) is an independent standard-setting body that serves the public interest by setting robust, internationally appropriate ethics standards, including auditor independence requirements, for professional accountants worldwide. These are compiled in the Code of Ethics for Professional Accountants™.
USA Today: Accounting Fraud - Pt 1. The Problems
USA Today: Accounting Fraud - Pt 2. The Results
USA Today: Accounting Fraud - Pt 3. The Solutions

Databases to find articles

Mergent Online This link opens in a new window Mergent offers a wealth of detail on US and International public companies including business description, history, property, subsidiaries, officers and directors, long-term debt and capital stock. Financial statements are presented in "as-reported" form and in native currencies.
International Directory of Company Histories This link opens in a new window Provides histories of companies that are a leading influence in a particular industry or geographic location. For students, job candidates, business executives, historians and investors.

EDGAR From the Securities and Exchange Commission (SEC). Includes annual reports, quarterly reports, balance sheet, income statement, security activity and analysis and much more

Selected Articles

Giroux, G. (2008). What Went Wrong? Accounting Fraud and Lessons from the Recent Scandals. Social Research, 75(4), 1205-1238. This article discusses corporate accounting fraud in the United States including cases involving companies such as Worldcom Inc., Adelphia Inc., and Enron Corp. The prominence of energy and telecommunications companies among those charged with malfeasance during the 2000s is considered in light of their deregulation during the late 20th century. The complicity of the Arthur Andersen auditing firm in the fraudulent transactions carried out by Enron and WorldCom is explored. The development of the U.S. Sarbanes-Oxley Act of 2002 to limit the development of future scandals is explored.
Brazel, J. F., Jones, K. L., & Zimbelman, M. F. (2009). Using Nonfinancial Measures to Assess Fraud Risk. Journal Of Accounting Research, 47(5), 1135-1166. doi:10.1111/j.1475-679X.2009.00349. This study examines whether auditors can effectively use nonfinancial measures (NFMs) to assess the reasonableness of financial performance and, thereby, help detect financial statement fraud (hereafter, fraud). If auditors or other interested parties (e.g., directors, lenders, investors, or regulators) can identify NFMs (e.g., facilities growth) that are correlated with financial measures (e.g., revenue growth), inconsistent patterns between the NFMs and financial measures can be used to detect firms with high fraud risk. We find that the difference between financial and nonfinancial performance is significantly greater for firms that committed fraud than for their nonfraud competitors. We also find that this difference is a significant fraud indicator when included in a model containing variables that have previously been linked to the likelihood of fraud. Overall, our results provide empirical evidence suggesting that NFMs can be effectively used to assess fraud risk. [ABSTRACT FROM AUTHOR]
Albrecht, W. S., & Hoopes, J. L. (2014). Why Audits Cannot Detect All Fraud. (cover story). CPA Journal, 84(10), 12-21. The article discusses fraud detection in the audits of financial statements and provides examples that make it difficult for auditors to detect all fraud. The inability to detect fraud centers on the key differences between a financial statement audit and a fraud audit, where a financial audit relies mainly on a sampling of transactions while a fraud audit analyzes all accounting transactions, eliminating sampling error. Additionally, the use of outsiders, forgery, and lying help conceal fraud.
Brazel, J. F., Jones, K. L., & Zimbelman, M. F. (2009). Using Nonfinancial Measures to Assess Fraud Risk. Journal Of Accounting Research, 47(5), 1135-1166. doi:10.1111/j.1475-679X.2009.00349.x This study examines whether auditors can effectively use nonfinancial measures (NFMs) to assess the reasonableness of financial performance and, thereby, help detect financial statement fraud (hereafter, fraud). If auditors or other interested parties (e.g., directors, lenders, investors, or regulators) can identify NFMs (e.g., facilities growth) that are correlated with financial measures (e.g., revenue growth), inconsistent patterns between the NFMs and financial measures can be used to detect firms with high fraud risk. We find that the difference between financial and nonfinancial performance is significantly greater for firms that committed fraud than for their nonfraud competitors. We also find that this difference is a significant fraud indicator when included in a model containing variables that have previously been linked to the likelihood of fraud. Overall, our results provide empirical evidence suggesting that NFMs can be effectively used to assess fraud risk. [ABSTRACT FROM AUTHOR]
Burton, F., Wilks, T., & Zimbelman, M. (2011). The impact of audit penalty distributions on the detection and frequency of fraudulent reporting. Review Of Accounting Studies, 16(4), 843-865. doi:10.1007/s11142-011-9152-9 We investigate how the distribution of the penalties incurred by auditors for failing to detect fraud influences their effort to detect fraud and auditees' commission of fraud. We compare a probabilistic, skewed audit penalty to a penalty that automatically imposes the expected penalty of the probabilistic distribution (hereafter, a deterministic penalty). Our experiments show that a deterministic penalty with the same expected value of a probabilistic, skewed penalty increases audit effort to detect fraud and decreases fraudulent reporting by auditees and that these benefits hold in a game involving both auditee and auditor players. [ABSTRACT FROM AUTHOR]
Romney, M. B., Albrecht, W. S., & Cherrington, D. J. (1980). Auditors and the Detection of Fraud. Journal Of Accountancy, 149(5), 63-69. The article discusses the results of a fraud study funded by the Peat, Marwick, Mitchell Foundation, conducted by researchers with backgrounds in information systems, accounting, organizational behavior, psychology and criminology. In response to this concern, the accounting profession has taken steps to acknowledge a greater responsibility for the detection of fraud as evidenced by Statements on Auditing Standards no. 16, The Independent Auditor's Responsibility for the Detection of Errors or Irregularities, and no. 17, Illegal Acts by Clients. In addition, the American Institute of Certified Public Accountants created the Commission on Auditors' Responsibilities, which developed conclusions and recommendations regarding the appropriate responsibilities of independent auditors. Fraud is increasing both in terms of number of crimes and average dollar loss per incidence. One of the reasons for this increase is that society has reduced the costs and increased the benefits of committing fraudulent acts. When fraud perpetrators were compared with other incarcerated property offenders and college students, it was found that they were much different than other property offenders and more closely resembled the college students. Fraud perpetrators are less likely than other property offenders to be caught, turned in, arrested, convicted, incarcerated or serve long sentences.
Albrecht, W. S. (1989). How CPAs Can Help Clients Avoid Investment Scams. Journal Of Accountancy, 168(4), 104-106. The article provides information on how certified public accountants can help their clients avoid inappropriate investments and spot investment scams. The article made reference to the Sardine Canyon scam in Utah and the events that took place in the incident. Accountants should recognize when investments do not make business sense and should be able to help their clients make intelligent judgments about investment alternatives to avoid scams. The author offers suggestions on how to aid clients in avoiding investment scams.
Barney, B. J., & Schulzke, K. S. (2016). Moderating ‘‘Cry Wolf’’ Events with Excess MAD in Benford’s Law Research and Practice. Journal Of Forensic Accounting Research, 1(1), A66-A90. doi:10.2308/jfar-51622 False positives or ‘‘Type I errors,’’ wherein test results indicate fraud where none actually exists, have been described as a costly ‘‘cry wolf problem’’ in auditing practice. Benford’s Law, which is used as one tool among many in screening for financial statement manipulation, is especially prone to false positives when applied to small and moderately sized datasets. Relying in part on Monte Carlo simulations, we describe with greater precision than extant literature the mathematical correlation between N and Mean Absolute Deviation (MAD), a statistic increasingly used for assessing deviation from Benford’s Law. We recommend replacing MAD with an alternative, Excess MAD, which explicitly adjusts for N in estimating deviation from Benford’s Law. Applying nonparametric, generalized additive modeling to public company financial statement numbers, we demonstrate the differing outcomes expected from Excess MAD and MAD and produce evidence suggesting that, despite Sarbanes-Oxley and Dodd-Frank legislation, Benford’s Law conformity of public company financial statement numbers remained relatively stable across four decades beginning in 1970. [ABSTRACT FROM AUTHOR]
Prawitt, D. F., Sharp, N. Y., & Wood, D. A. (2012). Internal Audit Outsourcing and the Risk of Misleading or Fraudulent Financial Reporting: Did Sarbanes-Oxley Get It Wrong?* Internal Audit Outsourcing and the Risk of Misleading or Fraudulent Financial Re The article discusses the U.S. Sarbanes-Oxley Act (SOX) of 2002 which prohibits firms from outsourcing internal audit services to firms' external auditors and also questions if SOX had an impact on the risk of misleading or fraudulent financial reporting. The article discusses accounting risk and internal auditing data in the context of the economic bonding argument which suggests audit quality will be compromised and of the knowledge spillover argument which suggests audit quality will improve. The research methods, the propensity score matching model and the multivariate regression model, are part of the discussion.
Emett, S., & Wood, D. A. (2010). Common Question-Evasion Tactics. Journal Of Accountancy, 210(1), 36-39. * External and internal auditors and other practicing accountants, including forensic accountants, may face situations where an interviewee evades a question rather than providing an unequivocal answer. * Understanding the reasons for and ways in which individuals dodge questions can help accountants and auditors with limited interviewing experience prepare for and respond to situations where an interviewee is evasive. * One common tactic that interviewees use to avoid questions is to attack the interviewer. In this situation, interviewers must be bold and credible in their response to the attack while remaining tactful and respectful. * Attacking the question is another method of evasion. The interviewer needs to be an "expert" on the question at hand and explain to the interviewee why the question is relevant and important. * A respondent may sidestep a question by acknowledging it without providing an answer. To help elicit a specific response, the interviewer should establish clear objectives for the interview and ensure that each of those objectives has been met by the end of the interview. * When a respondent declines to answer a question by indicating that he or she lacks the necessary knowledge or expertise to answer the question (when he or she really doesn't) or promising to "work on it" (without intending to do so), the interviewer must hold the respondent accountable for the expertise or knowledge that is generally expected of someone in the interviewee's position or by following up on an interviewee's promise to work on getting an answer. * An interviewer should plan in advance for overly ambiguous and unreliable answers by knowing the specific information needed from the interview. [ABSTRACT FROM PUBLISHER]
Galletta, P. Z. (2015). A basic field guide to fraud. The CPA Journal, 85(3), 54-59. With social media usage steadily on the use, the effects of fraud -- or even the perception of fraud -- on companies can be immediate and devastating. Given the increased and well-publicized detection of fraud in recent years, it is important for CPAs to enhance their knowledge in this area by examining fraud within different contexts, as well as relevant court cases and guidance. Fraud can be broken down by the type of fraud that might cause a material misstatement in financial statements: 1. employee embezzlement, 2. Ponzi scheme, 3. pump-and-dump schemes, 4. vendor fraud, 5. consumer fraud, and 6. miscellaneous fraud. One can discuss fraud with respect to legal and regulatory guidance aimed at preventing and identifying fraud schemes. One organization that concentrates on fraud prevention is the Committee of Sponsoring Organizations of the Treadway Commission, which provides guidance on governance and operational performance, interim controls, enterprise risk management, and fraud deterrence.
Gagliardi, C. (2014). The reality of fraud risk. The CPA Journal, 84(4), 11. Fraud is a word that no one wants to hear -- and one that many business owners choose to ignore, despite dedicating their lives to building and protecting their businesses. This is a huge mistake. Luckily, CPAs are well positioned to guide businesses in better understanding fraud risk. When discussing fraud with their advisors, many small business owners might believe they are immune. The column addresses five common misconceptions that they might have. CPAs can help open up small business owners' eyes to the possibility of fraud and take steps to try to prevent and detect it. CPAs can provide their opinion on internal controls and offer suggestions on how to improve or implement lacking controls.
Roden, D. M., Cox, S. R., & Kim, J. Y. (2016). The Fraud Triangle as a Predictor of Corporate Fraud. Academy of Accounting and Financial Studies Journal, 20(1), 80-92. We test whether proxies for elements of the fraud triangle are related to fraudulent corporate behavior. We use Accounting and Auditing Enforcement Releases from 2003 through 2010 to form a sample of 103 firms with violations and compare their characteristics to a matched sample of control firms. We find significant explanatory variables representing all three sides of the fraud triangle; including opportunity, pressure and rationalization. SEC violations are more likely when the board of directors has fewer women, longer tenure, more insiders, and the CEO is also the chairperson. Fraud is also more likely when managers and directors are compensated with stock options and when there has been a recent auditor change.
McMahon, R., Pence, D., Bressler, L., & Bressler, M. S. (2016). New Tactics in fighting financial Crimes: Moving Beyond the Fraud Triangle. Journal of Legal, Ethical and Regulatory Issues, 19(1), 16-25. Financial crimes are not new-they have been around for centuries. However, only in more recent times have we begun to explore and attempt to understand why they occur. We attempt to do this not simply for psychological understanding, but also to develop defensive strategies to prevent future financial crimes. In this paper, the authors discuss conditions typically present that allow persons within and outside the firm the opportunity to commit crimes. The authors then offer additional preventive measures and conclude with recommendations for management.
Gujarathi, Mahendra R. 2017. "Diamond Foods, Inc.: A Comprehensive Case in Financial Auditing." Issues In Accounting Education 32, no. 1: 95-112. Business Source Premier, EBSCOhost (accessed May 5, 2017). Diamond Foods is a comprehensive case that provides an opportunity for students to apply several financial auditing concepts and professional auditing standards to a real-world context. Diamond overstated its earnings of fiscal 2010 and 2011, by 38 percent and 47 percent, respectively, by delaying recognition of the cost of walnuts acquired to later accounting periods. The case requires students to determine whether Diamond's external auditor -- Deloitte & Touche, LLP (Deloitte) -- fulfilled its responsibility to obtain reasonable assurance that the financial statements were free of material misstatement. Students need to determine whether Deloitte's issuance of an unqualified opinion on Diamond's financial statements and internal controls violated professional auditing standards. In addition, students are required to evaluate whether Deloitte obtained sufficient understanding of Diamond's business and industry, exercised the needed professional skepticism, and used appropriate analytical procedures to discharge its professional responsibilities. The case presents an opportunity to achieve several learning objectives, including the development of research, critical-thinking, communication, and problem-solving skills. The case is appropriate for use in a graduate or undergraduate course in financial auditing. It can also be used in a fraud examination course, or in a capstone course in the accounting curriculum.

Books

Corporate Fraud: Case Studies in Detection and Prevention by John D. O'Gara
ISBN: 9780471493501
Publication Date: 2004-03-11
Case studies in detention and prevention