Now that we have a basic apprehension of what fraud and forensic auditing is, it is of import for us to analyze the history of the field. Fraud and forensic scrutinizing emerged during the 1970s and 1980s with the detonation of engineering based concern maps. As we know all excessively good, engineering can increase efficiency, while besides increasing hazards to security and fraud. Besides during this clip, concerns about fraud, authorities waste, and offense ( white-collar and blue-collar ) were being plastered on the intelligence. Therefore, it was rapidly evident that concern needed some signifier of invasion sensing supervising systems to pull off the hazards of inappropriate activities, therefore taking to the subject of fraud/forensic auditing. This new signifier of scrutinizing goes beyond authorities ordinances and is designed to be used in judicial proceeding for claims of insurance, bankruptcy, peculation, computing machine fraud, etc. Computer offenses and fiscal fraud are carefully calculated, intuitive onslaughts by felons. Therefore, fraud and forensic auditing requires more than merely a basic set of criterions ; it requires intuition. Because fraud is frequently detected by accident, fraud hearers have developed a set of “ scenarios ” to larn to be proactive and think like a condemnable. Jack Bologna, president of Computer Protection Systems, Inc. in 1984, stated that the best preparation for fraud hearers was on-the-job preparation. Bologna went on to state that because of the great grade of variableness in fraud there is no clear manner to larn everything in the schoolroom, although fraud hearers must hold a basic apprehension of accounting and scrutinizing. Therefore, the best experience comes from working in the field [ 8 ] .
Fraud and forensic auditing is a dynamic and of all time altering subject. The first fraud and forensic auditing tools ( referred to as invasion sensing systems ) involved systems decision makers watching a computing machine console to supervise user ‘s actions. The end of these invasion sensing systems was to observe unauthorised or illegal usage of the systems. Systems decision makers looked for “ red-flags ” on the system, such as, holidaying employees remotely logging in to the system or a seldom-used computing machine constituent all of a sudden being turned on for no evident ground. The consequences of these early invasion sensing devices were logged on sheets of folded computing machine paper that were later stacked several pess high by the terminal of each hebdomad. The systems decision makers were so faced with the dashing undertaking of filtrating through these tonss of information to happen possible fraud. Although the end of this system was to observe fraud and improper/illegal usage of the systems, it was more reactive than proactive. The attack was slow and complex with the sensing system logs tally at dark and non examined until the following twenty-four hours. Therefore, most invasions were non detected until after they had already occurred. However, in the 1990s, real-time invasion sensing scanners were introduced leting systems administrators a better chance to reexamine systems information as it was produced and the ability to react in real-time. This much more proactive attack increased the effectivity of the invasion sensing systems and in some instances allowed decision makers the ability to assail pre-emption [ 9 ] .
However, as the invasion sensing systems evolved, so hold the types of fraud. Presently, the Securities and Exchange Commission hear over 100 instances of fiscal fraud/accounting instances per twelvemonth, which is a blunt addition before the detonation of engineering in concern before the 1970s. In some instances, large named companies, such as, Bausch and Lomb, Sunbeam, and Knowledgeware have had to repeat fiscal studies due to fraud. This in bend affects stock monetary values, frequently leads to bankruptcy, alterations in ownership, and layoffs, among other jobs. In footings of fiscal fraud instances, nevertheless, merely approximately 2 % make it to test, 20 % are dismissed ; the balance are settled out of tribunal. Prosecution is dearly-won both to the authorities and to investors and company employees. However, as economic times worsen, as we have seen in recent old ages, the figure and assortment of fraud instances increases. Financial fraud is a dynamic, of all time altering market that alterations every twenty-four hours with additions in new engineerings [ 10 ] .
In order to maintain gait with the demand for fraud sensing systems, fraud/forensic hearers are being held responsible for the addition in the sensing of fraud. However, as Jack Bologna discussed in 1984, most fraud sensing systems can non be learned in a schoolroom, but instead must be learned on-the-job [ 8 ] . Following this construct, most universities today still lack course of study in fiscal fraud sensing. Although, the demand for hearers trained in fraud sensing is increasing at a rapid gait as the incidence and assortment of fraud additions. With the dynamic fraud environment, comptrollers and hearers likewise must remain up-to-date on fraud sensing so that scrutinizing plans are adequately designed to run into the altering demands of forensic auditing. Therefore, as most would hold, hearers must equilibrate instruction and preparation to supply the best defence to battle fiscal fraud [ 10 ] .
How is a Fraud and Forensic Auditing Different from a Traditional Audit?
With the development of the Sarbanes-Oxley Act of 2002, the auditing and accounting universe was turned on its caput. The Sarbanes-Oxley Act was a game-changer in fraud sensing. Prior to the Act, scrutinizing houses were chiefly self-regulated, which proved to be debatable [ 11 ] . Firms, such as Arthur Anderson, threw unity out the window and conspired to perpetrate fraud right along with the deceitful companies. Therefore, Sarbanes-Oxley created the Public Company Oversight Board ( PCAOB ) to supply more inadvertence and ordinance to the accounting profession. In 2004, fraud cost the United States economic system $ 684 billion, 20 times the cost of standard street offense, farther exemplifying the importance of a strong fraud sensing system.
Although it may look that fraud and forensic auditing are virtually the same, there are some differences. Both fraud and forensic audits and regular fiscal audits portion the end of observing material deceit of the fiscal statements ; nevertheless, fraud and forensic scrutinizing take scrutinizing a measure farther. Fraud/forensic audits are capable to stricter guidelines and regulations and are chiefly concerned with internal controls. They examine audit trails for discrepancies or divergences in strong internal control. Fraud/forensic hearers are frequently described as one portion comptroller, one portion attorney, one portion investigator, and wholly professional. These hearers must be able to turn out all their findings. Fraud/forensic hearers rely on the usage of methodological analysis tabular arraies to demo flows of minutess and examine divergences. They must hold so much item, because they have the load of cogent evidence to supply grounds to juries of non-accountants. Therefore, the grounds must be outlined in ballad footings and be beyond a sensible uncertainty.
Even though there are differences between a traditional audit and a fraud or forensic audit, the fraud/forensic hearer ‘s work can greatly assist fiscal comptrollers and hearers with their undertakings. Sarbanes-Oxley Section 404 requires top direction to sign-off and be responsible for all fiscal information, including internal control for their company. To the benefit of traditional hearers, fraud/forensic audits warrant the application of Section 404. Because fraud/forensic hearers guarantee such degrees of item in internal controls, fiscal hearers can more easy understand the entity ‘s internal control construction and better design audit processs to observe hazard of material misstatement of the fiscal statements. This greatly decreases the sum of clip in be aftering the audit and allows the fiscal hearers more clip to plan farther audit processs that are more responsible to the buttocks the hazard of material misstatement [ 11 ] .
