Diffusion and Implementation of Forensic Accounting in Countries of Business Opacity

Introduction

The increasing awareness of financial crimes is growing the demand for forensic accountants to help detect illegal financial activity by companies, individuals, and organized crime rings. No matter how much fraud activities increase, there must always be an anti-fraud scheme to shield against it. To provide availability of balance and protection from illegal business acts is the main reason why Forensic Accounting (FA) exists.

With the pressing need for Forensic Accounting as a tool to fight fraud, this article studies its applicability in countries of opaque business practices, probes the accessible means that would help in introducing it to the culture, and spots the areas where it is radically needed especially in the countries of financial cloudiness and opacity. The results are based on quantitative and qualitative studies in Lebanon for being perceived as an opaque country, sharing the same characteristics that define nations with fraudulent financial behaviour suffering from a high level of financial corruption such as money laundering, lack of transparency or adequate financial disclosures as well as corruption at the level of management, supervisory boards and even governments themselves.

The results of the studies reveal that Forensic Accounting is perceived as a means to overcome fraudulent behaviour. Most of the respondents either agreed or strongly agreed on the need to incorporate it in order to prevent fraud and for detection purposes as a primary need. However, the respondents considered this to be new in Lebanon with a highest percentage of people (56.36%) reporting that it wasn’t used by Lebanese companies due to the lack of awareness, privacy issues, the nature and type of businesses (family businesses and SMEs), lack of guidance concerning the standards (local or international) that should be applied and lack for proper regulations. Yet respondents showed a positive attitude towards the implementation in Lebanon as financially corrupted country. Thus with such an encouraging perception amongst respondents, the issue remains in the introduction and diffusion of Forensic Accounting.

The outcomes of the studies also supported the idea of setting a law that mandates all sectors to submit a Forensic Accounting report. The idea of setting a law that enforces companies to file such a report was embraced by the majority of respondents who also considered that the best means of introducing this system in a country of opaque business country is through the educational curriculum via the graduate programs. DIFA (Diploma in Investigative & Forensic Accounting) as well as the CPA (Certified Public Accountant) were recommended as the certifications that should be granted in the corrupted countries as in the case of Lebanon.

Research Question and Hypotheses

The discussion of the study results are based on the research questions that investigated “To what extent is Forensic Accounting applicable? And how could it be introduced?” In order to answer these questions, there is a need to identify if such a scheme is known at any levels and sectors or if it is used or applied as a procedure by financially corrupted companies or governmental institutions.

Accounting Software – Do You Need an Accountant?

The traditional role of an accountant is changing. In previous years a small business would class a good accountant as one of the fundamental requirements when starting a business. Their support and guidance towards all matters connected with the set up and launch of a business was perceived as essential in order for a small business to be ultimately successful. The perceived importance of the role accountants play with small business has been increasingly bought into question as the internet has grown and developed. The advice that accountants used to charge for regarding company formation, company structure and VAT registration is now largely available for free on the internet. Furthermore, the rise in online accounting software has made it easier than ever for a small business to keep their company books in good shape. We wanted to explore why more and more small businesses are choosing to use online accounting software and how this has impacted the traditional role of the accountant.

Why are business owners using online accounting software?

Cost – When the accounting and bookkeeping world was inaccessible to owners of small business the large cost burden of having a professional accountant was seen as simply a core running cost of the business. The cost structures of accountants differ widely from per hour, fixed fees for defined work and some even charge by the minute for telephone calls. Whatever the cost structure having an accountant look after all of you small business financial affairs will be a significant burden to your cost and business profits. Basic software for accounting can be available from as little as 5 a month.

Time Schedules – A piece of software can continue working 24 hours a day whereas an accountant has set schedules and opening times. As a small business you will very rarely be working to a 9-5 schedule and therefore having the rigid nature of accountant opening hours can be frustrating. Even more so if a deadline is required that requires an accountants help and you are charged overtime for an accountant working out of hours.

Information security – Despite the likelihood of you signing confidentiality agreements with your chosen accountant the fact remains that you are disclosing private information regarding your business strategy and performance to a 3rd party. Whilst there can be advantages to this is the form of gaining 2nd opinion on company performance there is also a risk that this information get into the public domain. Software for accounting allows you to keep all of your confidential information inside the business.

Ease of use – Software for accounting has become very user friendly with many products available that do not require the user to have any accounting knowledge at all. This allows tradesman and sole traders to be able to easily to control of their financial affairs.

Improved business Performance – There can be real business performance advantages of taking control of the company finances as opposed to outsourcing them.

o Accountability – An obvious advantage of taking control of you financial affair is that there becomes greater accountability to deliver. Software for accounting allows small business owners to be much closer to the financial affairs than when they are outsourced.

o Collaboration – one of the risks out outsourcing all financial management to an accountant is that it stifles people from within the business talking and engaging about disciplined financial management. Taking control of financial affairs internally within the business increases engagement and collaboration across the business to improve the company’s financial performance.

If more businesses are using online accounting software is there a role for traditional accountants?

In short, yes, but in a different capacity to how they have traditionally been deployed. Accountants need to focus less on the bookkeeping and daily accounting of small businesses and focus more on the provision of advice that optimises business performance. SME’s are becoming well versed in the many advantages that exist within doing your own accounting via an easy to use, cost effective software package. That said, many small business owners still have a requirement to discuss future business optimisation with a financial planning expert.

Software cannot possibly understand a business’s objectives and work with the owners to produce a strategy to optimise performance. Nor can a software package proactively restructure the company books to save tax as the company grows and develops. Once a small business is established they would benefit from advice from an ‘auditor’ regarding business structures, financial efficiency and tax planning. This annual audit ensures that the business is on the right track for sustainable growth and success.

How to Produce Management Accounts – A Quick Guide

This guide is primarily aimed at fresh graduates, entry level job hires, professional students, and any individual related to the profession of accountancy (and management accountancy in particular), who wishes to have a quick overview of how a set of management accounts can be produced and what entails in its production, without having to read a 200 page book. Most of the knowledge set out henceforth is from the point of view of working in a service based industry and assumes the reader to have a reasonable knowledge of the fundamental concepts of accounting.

The scope of this guide is to give the readers a sequence of activities that I have followed, in my own experience, to put together a monthly reporting pack for my senior management team. This sequence of activities and the importance that I attach to each activity can be very different for the line of business that you are in. Having said that, I do expect that most of you will develop a more vivid and succinct picture of the production process, which you can then imitate and integrate into your own particular circumstances.

So, let’s begin!

What are we trying to produce?

In most organisations, the board or senior management requires the management accountant/chief accountant to produce a monthly profit and loss account/income statement, so that the organisation’s performance against set budgets (mostly prepared at the beginning of each financial year) and expected forecasts (mostly updated at each month end) can be gauged. A monthly management accounting reporting pack does not only include the monthly income statement, but a range of other useful reports too. However, an income statement does constitute the bulk of the reporting and this is what we will try to produce in this guide.

In a nut shell, through a certain set of activities and for a given period (usually a month), we determine: the revenues generated by the business, the costs incurred in the production of such revenues (commonly known as ‘cost of goods/services sold’) and the costs incurred to provide support to such revenue generation and goods/services production. This cost is sometimes referred to as the central overheads’ costs or support functions’ costs or the service-centre costs.

What you should know before you begin production?

Most businesses will use a “Chart of Accounts” in their accounting systems (may it be: Sage, SAP, Oracle, SUN, Viztopia etc.) to classify and record various types of transactions involving differing kinds of assets, liabilities, capital, revenues, and costs.

A Chart of Accounts or COA, as I like to call it, is a list of all nominal ledger accounts that a business intends to use to record its business transactions. This list of accounts can be in the shape of numbers, alphabets or alpha-numeric values. Due to my own experience, I prefer numbers.

So, to give an example, our full COA might range between the numbers 0001 and 9999 and within this range, we can have multiple ranges, each representing an asset, liability, capital, revenue or costs type. As an example, the range 5000-5999 might only represent different kinds of revenue streams for a business and the range 1000-1999 might only refer to all fixed assets held by the business.

These are just examples of how the COA could be divided. You need to know what range/s of nominal account codes in your business’s COA constitutes the revenues, the cost of goods/services sold, the central overheads, the assets, the liabilities, and the capital.

You will not be able to understand the income statement (which is what you are essentially trying to produce), unless you understand the Chart of Accounts. The income statement is basically reading all data held in the COA range/s relating to revenues and costs for a given month/period.

Forensic Accounting – a New Paradigm For Niche Consulting

OBJECTIVES OF WRITING THIS ARTICLE: Forensic accounting(F.A.) has come into limelight due to rapid increase in financial frauds and white-collar crimes. But it is largely untrodden area in India.The integration of accounting, auditing and investigative skills creates the speciality know as F.A.The opportunities for the Forensic Accountants are growing fast;they are being engaged in public practice and are being employed by insurance companies, banks, police forces, government agencies etc.This article seeks to examine the meaning and nature, activities and services rendered, core knowledge and personal skills required for forensic accounting as a specialized field in accountancy profession. Indeed there is a future in F.A. as a separate niche consulting.

The lack of respect and belief in India’s law enforcement agencies and the rate at which white-collar crimes have increased has prompted the development of Forensic Accounting in India. The fraud detecting agencies seems to lack time and devotion needed for detecting and prevention of errors and fraud. According to a large global accounting firm, the market is sufficiently big enough to maintain an unit devoted entirely towards “forensic accounting”. Many large as well as small accounting firms as well as the tiny firms have inculcated or rather developed separate forensic accounting departments.

We were of the belief that detection and prevention of frauds or white-collar crimes is part of conventional accounting function. It was thought that the frauds, both internal as well as external has be to detected by the auditors through their periodic audit. Now it is crystal clear that auditors can only check for the compliance of a company’s books to generally accepted accounting principles, auditing standards and company policies. Hence the need was felt to detect the frauds in companies that are suspected to be engaged in fraudulent transactions. This field of accounting is known as “forensic accounting”.

The litmus test of investigation, first introduced by the ever great Sherlock-Homes(considered by many as the father of Forensic Accounting) is perhaps the first ever application of forensic accounting. Though, the contribution of the other few great historians to the field of forensic accounting cannot be overlooked. They used various tricks to investigate various crimes.

F.A. is a specialized a area of accounting practice that describes engagements which result from actual or anticipated disputes or litigation. The word “forensic” means “suitable for use in court”. The forensic accountants have to keep in mind this statement while they have to work or chalk out their programme. The F.A. work is tailor made according to the situation and need. The gathering of information and evidences is done according to the need and situation. We can say, it is customized according to the situation. The forensic-accountants give expert evidence at the ultimate trial. All the modern medium-sized as well as the large-sized accounting firms have specialized forensic accounting departments. Within these firms there may be specialized forensic accounting departments. Within these groups their may be further sub-specializations. Various sub-specializations include insurance claims, personal injury claims, fraud detection, construction or royalty audits. Nearly 40 percent of the top 100 US accounting firms are expanding their forensic and fraud services, according to Accounting Today. Now if we consider this data as significant then we can say that the total contribution of forensic accounting to the total revenue of the C.A. firms would be highly significant in the years to come. Under rising instances of frauds and litigation and flourishing businesses these services are considered to be very significant as they are rendered at a very competitive price.

The forensic accountants utilize the various information relating the business, utilizes financial reporting systems, various accounting and auditing standards and procedures, investigative techniques and litigation processes and procedure to perform their work. By acting as advisors to audit committees and assisting in investment analyst research, they are playing more “proactive” risk reduction roles.This is possible by designing and performing extended procedures as part of the statutory audit. The objectives of such an accounting include measurement of losses caused by an auditor due to his negligence, to look into the matter whether their has been any embezzlement of cash, the amount, necessity of criminal proceedings, computation of asset values in a divorced proceeding.

Professional Accounting Bodies In Australia

What is an accountant? According to the Australian Accountants Directory they are, “a practitioner of accountancy or accounting, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources”(“About Accountants”). As you may already know, different areas of the world have different professional bodies of accounting.

For example, not every country uses the American Institute of Certified Public Accountants (AICPA). As the name suggests, that’s only used in the United States. Australia however, has three legally recognized local professional accounting bodies; the institute of public accountants (IPA), CPA Australia (CPA), and the institute of chartered accountants of Australia (ICAA).

The IPA has been around since 1923 and continues to grow in the organization today. After 90 years it currently sits more than 26,000 members and students across 64 countries and is ranked in the top professional accounting bodies in the world (“Institute of Public Accountants”). They acquired a full membership of the International Federation of Accountants (IFAC) in 2005 as well as the Confederation of Asian and Pacific Accountants (CAPA) in 2011. They are really working towards building relationships and exchanging knowledge overseas. They are innovative in everything that they do as they already are recognized as one of the top 20 in BRW’s most innovative companies in Australia list for 2012. The IPA has three levels of membership, Associate (AIPA), Member (MIPA), and Fellow (FIPA). An Associate membership requires one to have an Australian Advanced Diploma of Accounting or a Bachelor’s degree in Accounting that can be Australian or equivalent in nature. MIPA membership requires Australian Advanced Diploma of Accounting, two years of pre-IPA program full-time work experience in accounting or related fields and a mentored experience program. A FIPA membership requires 7 years’ MIPA status or equivalent and 10 years’ experience in accounting the last five years have to be at a senior level (“Institute of Public Accountants”).

According to CPA Australia, they are one of the world’s largest accounting bodies with a global membership of more than 150,000 members working in 120 countries around the world, and with more than 25,000 members working in senior leadership positions (“About Us”). They provide education, training, technical support and advocacy. They were an early entrant in the Asian Market, where their involvement began in the early 1950s and aimed at developing and strengthening the accounting profession in the region. As of today almost one-quarter of CPA Australia’s members reside outside of Australia, with over 35,000 in Asia. They currently have nineteen staffed offices across Australia, China, Hong Kong, Malaysia, Singapore, Indonesia, Vietnam, New Zealand and the UK. To become a member of this program candidates most hold a postgraduate award that is recognized by CPA Australia, and demonstrate competence in the required knowledge areas and, within a six year period, successfully complete the CPA Program (“About Us”). They must also have three years of professional experience in finance, or accounting for business. To offer public accounting services, CPAs must also complete CPA Australia’s Public Practice program, which involves distance learning and a residential component, and must hold a Public Practice Certificate in accordance with the CPA Australia’s by laws.