However, once the economy began to slow, is when this strategy backfired by forcing them to issues more stock to cover these losses. As shares were declining, many investors became weary of continuing to participate in these activities. (Healy, 2003)
In late 2001, these activities were brought to the attention of regulators and investors (which resulted in the eventual bankruptcy of the firm). This is illustrating how forensic accounts overlooked or ignored key areas that could have uncovered fraudulent activities. As a result, one could argue that the lack of ethics and the close relationship with company executives helped to perpetuate these abuses. (Healy, 2003)
Insider Trading
Another type of fraud that is most prevalent is insider trading. This is when executives will have specific knowledge of the financial situation surrounding the firm and they will begin purchasing or selling the company's stock in advance. The basic idea is to take advantage of the price irregularities before the rest of the market has a chance to discover what happened. In forensic accounting any kind of large buys or sells could be a sign that executives are aware of this information. This is a violation of the Securities and Exchange Act of 1934. As the law, requires that executives must disclose (to the SEC) their intentions in advance of conducting the transaction. (Jagolizinnger, 2009) (Bettis, 2000)
However, most executives will often say one thing to: their employees, regulators and the general public. Yet, privately they will be engaging in activities that are in direct contradiction to what they are telling others. When this happens, these individuals will receive significant advantages at the expense of stakeholders. (Jagolizinnger, 2009) (Bettis, 2000)
A good example of this occurred with World Com. During the 1990s; the company was rapidly taking advantage of deregulation in the telecommunications industry. The idea is that they could use this as a way to become a major communications and Internet provider throughout the U.S. This resulted in the firm acquiring a number of assets that helped to increase their size and market share. (Jagolizinnger, 2009) (Bettis, 2000) (Albrecht, 2006)
To achieve these objectives, management would often use their common stock as currency and acquired significant amounts of debt. The problem with this approach is that World Com was purchasing firms with funds they did not have. This meant that these activities would normally have an adverse impact on their stock price under GAAP accounting standards. To deal with these challenges, the firm would take smaller write offs for the losses over a period of many years (versus right away). When the economy was strong, this helped World Com to grow exponentially. (Jagolizinnger, 2009) (Bettis, 2000) (Albrecht, 2006)
However, once a slowdown occurred, is when these issues became problematic for executives. This is because the company was having trouble growing their earnings through acquisition....
Assets in the investment portfolio were overvalued. Financial transactions were structured to report smaller amounts of debt and create the appearance of greater cash flow. Financial results were represented in a false and misleading manner. Forensic accountants also played an important role in the Enron case by doing audits and investigating accounting practices to gather evidence of how the fraud was performed. They played vital roles in the court room
skills that a forensic accountant needs to possess and evaluate the need for each skill. Over the last several years, the role of forensic accountants has been continually evolving. This is because there have been a number of cases surrounding their ability to identify and prevent possible frauds. As a result, various skills must be utilized in the process that will help to improve the effectiveness of actuaries. These include:
Forensic accounting is a special subsection of accounting that goes beyond the typical job description of an accountant. Forensic accountants use their work in courtroom and other legal settings to help. Their primary roles are litigation support and investigative accounting (Zysman, 2012). To do this, forensic accountants combine accounting, auditing, and investigative skills. However, conducting investigations is only one component of a forensic accountant's job description; they also have to
This means laying out for the jury and the judge the role of different parties and how this contributed to illegal activities. It is at this point when everyone can understand the full context of the case. (Singleton, 2010) (Golden, 2011) Analyze the legal responsibility a forensic accountant has while providing service to a business. The legal responsibility of a forensic accountant is to determine when fraudulent activities have taken place
The forensic accounting done on Koss reveals the importance for a business's auditing firm's responsibilities. It also shows that an auditing firm is liable to face legal charges for failing to find a fraud in their accounting activities in a business. The forensic accounting carried out on Koss revealed that the Vice President Sujata and the former Senior Accountant, Julie Mulvane, engaged in a range of accounting fraud cover ups
roles of forensic accountants in preventing and detecting fraud within a business community. The paper highlights the requisites and basic responsibilities of a forensic accountant. The paper also makes references on the special cases where forensic accountants have assisted in fraud detection and prevention. Overview of Forensic Accounting Forensic accounting is the specialty area of accounting used to train an individual to develop the special accounting skills to detect and prevent
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