Forensic Accounting and Fraud Examination 2e William Hopwood,
george young, Jay Leiner (Solutions Manual All Chapters, 100%
Original Verified, A+ Grade)
Chapter 1
Introduction to Forensic Accounting and Fraud Examination
Teaching Notes
This chapter presents the opportunity to get students excited about the fields of
forensic accounting and fraud examination. 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 Fraud Examination is one very important opportunity within forensic
accounting.
o Forensic accounting is a challenging field that requires many special skills.
• Learning Objectives
o LO1: Define forensic accounting and fraud examination.
▪ 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 and fraud examiners.
▪ Forensic accountants are needed in almost every area of business.
Where there is money involved, a forensic accountant can play a role.
Fraud examiners are needed to assist in preventing, detecting,
investigating, and reporting on fraud.
o LO4: Identify the knowledge and skills that forensic accountants and fraud
examiners 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 and fraud examiners.
▪ 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
and fraud examiners.
▪ The organizations and professional certifications demonstrate that
forensic accounting is a well-recognized accounting specialty.
1-1
© 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
,Chapter 01 - Introduction to Forensic Accounting and Fraud Examination
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.
1-2
© 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
,Chapter 01 - Introduction to Forensic Accounting and Fraud Examination
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.
b. 2.
Correct. The 2 categories are investigative services and litigation services.
c. 3.
d. 4.
1-3
© 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
, Chapter 01 - Introduction to Forensic Accounting and Fraud Examination
8. A forensic accountant who determines the amount of lost profits due to business
interruption would be working in which of the following areas?
a. Valuation.
Correct. In this case, the forensic accountant would be assigning a value to lost profits.
b. Estimation.
c. Financial determination.
d. Auditing.
9. Corporate scandals prompted companies to begin using which of the following?
a. Forensic audits.
Forensic audits are focused and intensive, and most useful when a particular area of focus
can be identified from the circumstances.
b. Fraud-intensive audits.
Fraud-intensive audits are most applicable when fraud is suspected in a particular area.
c. Proactive fraud checkups.
Correct. Corporate executive are eager take proactive measures to avoid becoming
another scandal.
d. Internal control systems.
This answer is also correct to a letter extent. Further, companies don’t just begin using
internal control systems because of the scandals. Companies have always used internal
control systems.
10. Which of the following is the most recognized fraud credential?
a. CPA.
While CPAs may be generally competent to investigate fraud, the CPA is not a fraud-
specific credential.
b. CMA.
c. CFE.
Correct. The CFE is a fraud-specific credential, and it happens to be the most widely-
recognized fraud-specific credential.
d. None of the above.
Discussion Questions
11. Contrast and compare the role of the following:
a. The internal auditor.
b. The external auditor.
c. The external forensic accounting consultant in an external audit.
The internal auditor focuses on maintaining adequate internal control processes. The
external auditor focuses on attesting to financial statements. The external forensic
accounting consultant in an external audit is likely to focus on a specific area of
concern, one that is likely to involve suspected or actual fraud.
1-4
© 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
george young, Jay Leiner (Solutions Manual All Chapters, 100%
Original Verified, A+ Grade)
Chapter 1
Introduction to Forensic Accounting and Fraud Examination
Teaching Notes
This chapter presents the opportunity to get students excited about the fields of
forensic accounting and fraud examination. 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 Fraud Examination is one very important opportunity within forensic
accounting.
o Forensic accounting is a challenging field that requires many special skills.
• Learning Objectives
o LO1: Define forensic accounting and fraud examination.
▪ 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 and fraud examiners.
▪ Forensic accountants are needed in almost every area of business.
Where there is money involved, a forensic accountant can play a role.
Fraud examiners are needed to assist in preventing, detecting,
investigating, and reporting on fraud.
o LO4: Identify the knowledge and skills that forensic accountants and fraud
examiners 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 and fraud examiners.
▪ 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
and fraud examiners.
▪ The organizations and professional certifications demonstrate that
forensic accounting is a well-recognized accounting specialty.
1-1
© 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
,Chapter 01 - Introduction to Forensic Accounting and Fraud Examination
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.
1-2
© 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
,Chapter 01 - Introduction to Forensic Accounting and Fraud Examination
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.
b. 2.
Correct. The 2 categories are investigative services and litigation services.
c. 3.
d. 4.
1-3
© 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
, Chapter 01 - Introduction to Forensic Accounting and Fraud Examination
8. A forensic accountant who determines the amount of lost profits due to business
interruption would be working in which of the following areas?
a. Valuation.
Correct. In this case, the forensic accountant would be assigning a value to lost profits.
b. Estimation.
c. Financial determination.
d. Auditing.
9. Corporate scandals prompted companies to begin using which of the following?
a. Forensic audits.
Forensic audits are focused and intensive, and most useful when a particular area of focus
can be identified from the circumstances.
b. Fraud-intensive audits.
Fraud-intensive audits are most applicable when fraud is suspected in a particular area.
c. Proactive fraud checkups.
Correct. Corporate executive are eager take proactive measures to avoid becoming
another scandal.
d. Internal control systems.
This answer is also correct to a letter extent. Further, companies don’t just begin using
internal control systems because of the scandals. Companies have always used internal
control systems.
10. Which of the following is the most recognized fraud credential?
a. CPA.
While CPAs may be generally competent to investigate fraud, the CPA is not a fraud-
specific credential.
b. CMA.
c. CFE.
Correct. The CFE is a fraud-specific credential, and it happens to be the most widely-
recognized fraud-specific credential.
d. None of the above.
Discussion Questions
11. Contrast and compare the role of the following:
a. The internal auditor.
b. The external auditor.
c. The external forensic accounting consultant in an external audit.
The internal auditor focuses on maintaining adequate internal control processes. The
external auditor focuses on attesting to financial statements. The external forensic
accounting consultant in an external audit is likely to focus on a specific area of
concern, one that is likely to involve suspected or actual fraud.
1-4
© 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or
distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in
whole or part.
