Chapter 1
Teaching Notes
This chapter presents the opportunity to get students excited about the field of forensic
accounting. Suggested points to stress:
General
o Forensic Accounting breaks out from the traditional image of accounting as
boring.
o There are many specialty opportunities within forensic accounting.
o Forensic accounting is a challenging field that requires many special skills
Learning Objectives
o LO1: Define forensic accounting.
Differentiate from traditional accounting
o LO2: Describe the difference between forensic accounting and auditing.
Forensic accounting includes auditing, special auditing methods, and
other services in additional to auditing (e.g., litigation support)
o LO3: Explain the role of forensic accountants.
Forensic accountants are needed in almost every area of business.
Where there is money involved, a forensic accountant can play a role.
o LO4: Identify the knowledge and skills that forensic accountants are expected
to possess.
Must not only be good with accounting numbers, but also with
psychology, IT, and so on. The AICPA offers a special forensic
accounting certification to cpas.
o LO5: Describe the opportunities that exist for those who choose to work as
forensic accountants.
, Some specialties within forensic accounting (e.g., expert testimony,
expert consultant) can result in some of the highest-paying career
opportunities in business.
o LO6: Identify the organizations that support the work of forensic accountants.
The organizations and professional certifications demonstrate that
forensic accounting is a well-recognized accounting specialty.
Review Questions
1. To what does the word forensic pertain?
a. Financial audits when fraud is involved.
These types of audits are forensic audits, but the term “forensic” applies in a more
general sense.
b. A particular type of accounting
Forensic accounting is one type of accounting, but the term “forensic” applies in a more
general sense.
c. Matters relating to law and courts of law.
Correct. Forensic is a general term that relates to law and courts of law.
d. Prosecutorial investigations.
These represent forensic investigations, but the term “forensic” is more broadly
applicable.
2. For an act to be considered fraud, which of the following ingredient is required?
a. Large loss.
Fraud can involve losses of any size.
b. Legal entity (e.g., a corporation, partnership, or trust).
,Fraud can be committed against both legal entities and individuals.
c. Intentional harm.
Fraud can involve accidental harm or harm not realized by the victim. For example, if by
fraud one steals an object from someone, that someone is still a victim of fraud even if
she never misses the stolen object.
d. Intentional action or inaction.
Correct. Fraud generally does not include accidents.
3. Which of the following is outside the area of forensic accounting?
a. Corporate acquisitions.
Forensic accountants routinely review documents and provide consulting services in
relation to acquisitions.
b. Divorce.
For example, forensic accountants might search for hidden assets in a divorce proceeding.
c. Contract disputes.
For example, forensic accountants might search for evidence of fraud in contract
disputes.
d. None of the above.
Correct. None of the above is outside of the area of forensic accounting.
4. Which area of accounting is most closely associated with forensic accounting?
a. Information systems.
b. Managerial accounting.
c. Consulting.
d. Auditing.
Correct. Fraud investigation and examination, a primary area within forensic accounting
relies heavily on auditing techniques. All of the above areas of accounting are at least
, somewhat related to forensic accounting, although strictly speaking consulting is not an
area of accounting but rather a mode of accounting practice.
5. The Sarbanes-Oxley Act requires which of the following?
a. Auditors to receive specialized training in the act.
Auditors must be familiar with PCAOB standards relating to the act, but such familiarity
is not really specialized training.
b. The CEO to certify the financial statements.
Correct. One of the primary requirements of the act is to require ceos and ceos to certify
the financial statements under liability for criminal penalty.
c. Management to institute a zero tolerance policy for fraud.
d. None of the above.
6. How do the objectives differ for forensic accountants (fas) and external financial
auditors (efes)?
a. Fas are more thorough.
Both fas and efas must do their work thoroughly.
b. Efas audit a broader range of transactions.
Although this may be correct in a particular case of fraud, fas must potentially audit the
full range of transactions.
c. Efas tend to concentrate their work more.
The opposite is true.
d. Fas tend to concentrate their work more.
Correct. Fas tend to focus on particular problem areas, such as areas of suspected fraud.
7. How many categories does the American Institute of Certified Accountants use to
classify forensic accounting?
a. 1.
Teaching Notes
This chapter presents the opportunity to get students excited about the field of forensic
accounting. Suggested points to stress:
General
o Forensic Accounting breaks out from the traditional image of accounting as
boring.
o There are many specialty opportunities within forensic accounting.
o Forensic accounting is a challenging field that requires many special skills
Learning Objectives
o LO1: Define forensic accounting.
Differentiate from traditional accounting
o LO2: Describe the difference between forensic accounting and auditing.
Forensic accounting includes auditing, special auditing methods, and
other services in additional to auditing (e.g., litigation support)
o LO3: Explain the role of forensic accountants.
Forensic accountants are needed in almost every area of business.
Where there is money involved, a forensic accountant can play a role.
o LO4: Identify the knowledge and skills that forensic accountants are expected
to possess.
Must not only be good with accounting numbers, but also with
psychology, IT, and so on. The AICPA offers a special forensic
accounting certification to cpas.
o LO5: Describe the opportunities that exist for those who choose to work as
forensic accountants.
, Some specialties within forensic accounting (e.g., expert testimony,
expert consultant) can result in some of the highest-paying career
opportunities in business.
o LO6: Identify the organizations that support the work of forensic accountants.
The organizations and professional certifications demonstrate that
forensic accounting is a well-recognized accounting specialty.
Review Questions
1. To what does the word forensic pertain?
a. Financial audits when fraud is involved.
These types of audits are forensic audits, but the term “forensic” applies in a more
general sense.
b. A particular type of accounting
Forensic accounting is one type of accounting, but the term “forensic” applies in a more
general sense.
c. Matters relating to law and courts of law.
Correct. Forensic is a general term that relates to law and courts of law.
d. Prosecutorial investigations.
These represent forensic investigations, but the term “forensic” is more broadly
applicable.
2. For an act to be considered fraud, which of the following ingredient is required?
a. Large loss.
Fraud can involve losses of any size.
b. Legal entity (e.g., a corporation, partnership, or trust).
,Fraud can be committed against both legal entities and individuals.
c. Intentional harm.
Fraud can involve accidental harm or harm not realized by the victim. For example, if by
fraud one steals an object from someone, that someone is still a victim of fraud even if
she never misses the stolen object.
d. Intentional action or inaction.
Correct. Fraud generally does not include accidents.
3. Which of the following is outside the area of forensic accounting?
a. Corporate acquisitions.
Forensic accountants routinely review documents and provide consulting services in
relation to acquisitions.
b. Divorce.
For example, forensic accountants might search for hidden assets in a divorce proceeding.
c. Contract disputes.
For example, forensic accountants might search for evidence of fraud in contract
disputes.
d. None of the above.
Correct. None of the above is outside of the area of forensic accounting.
4. Which area of accounting is most closely associated with forensic accounting?
a. Information systems.
b. Managerial accounting.
c. Consulting.
d. Auditing.
Correct. Fraud investigation and examination, a primary area within forensic accounting
relies heavily on auditing techniques. All of the above areas of accounting are at least
, somewhat related to forensic accounting, although strictly speaking consulting is not an
area of accounting but rather a mode of accounting practice.
5. The Sarbanes-Oxley Act requires which of the following?
a. Auditors to receive specialized training in the act.
Auditors must be familiar with PCAOB standards relating to the act, but such familiarity
is not really specialized training.
b. The CEO to certify the financial statements.
Correct. One of the primary requirements of the act is to require ceos and ceos to certify
the financial statements under liability for criminal penalty.
c. Management to institute a zero tolerance policy for fraud.
d. None of the above.
6. How do the objectives differ for forensic accountants (fas) and external financial
auditors (efes)?
a. Fas are more thorough.
Both fas and efas must do their work thoroughly.
b. Efas audit a broader range of transactions.
Although this may be correct in a particular case of fraud, fas must potentially audit the
full range of transactions.
c. Efas tend to concentrate their work more.
The opposite is true.
d. Fas tend to concentrate their work more.
Correct. Fas tend to focus on particular problem areas, such as areas of suspected fraud.
7. How many categories does the American Institute of Certified Accountants use to
classify forensic accounting?
a. 1.
