Auditing and Forensic Accounting | Jose Martinez Souza | Boardroom ...

Jose A. Martinez Souza is a former Brazilian legislator and business executive. He is an expert on doing business in Brazil and a member of the Accomplished Executive team at Boardroom Metrics.

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I have been observing that companies providing auditing, compliance, and assurance are investing in multidisciplinary teams to perform forensic accounting services.  The market for accounting professionals in the forensics stream seems to be growing. After the Enron & WorldCom era,  measures were taken to comply with new requirements but, most recently, the sub-prime mortgage crisis gave to shareholders and public in general the idea that boards, audit committees, and public accounting firms , failed to prevent fraudulent operations.   Why were they unsuccessful?  What could be done by corporations besides implementation of proper regulation?  It is certain that one of the solutions lies on how corporations will expand their policies of fraud prevention.

Public and private entities  every fiscal year contract the services of public accounting firms to perform auditing services. Auditing is a method used by companies to evaluate internal control, processes, business activities, compliance with laws and regulations, and financial statements.  The auditing exam consists in specific tests assessing activities, accounting procedures, and they reduce potential deficiency in internal controls.

But, they do not eliminate fraud. There are some reasons why auditing procedures do not eliminate fraud.  One of the reasons is that the auditing process is performed in a test basis, and the exams do not have full extension. Organizations deal every day with too many transactions.  It is impossible for external auditors to analyze all of them. Another reason is that public auditors recognize that looking for fraud is a time consuming task. The scope of the audit work is designed based in tests and assessment made previously determining the exam extension.

Auditors know that white collar crimes occur frequently and it is complex to find them. They recognize that are many ways to take away assets from a company. Fraud perpetrators know how to commit them. Auditors do not have time to track down all fraud possibilities. They have a work schedule to be followed and the auditing process has a time limit. Once the completion date is reached and the service is completed, the auditing team is transferred to another client. Fraud examination takes time, requires investigation methods, specific systems, and specialized accountants.

Financial Statement Fraud, Prevention and Detection

A Guide to Forensic Accounting Investigation

Forensic Accounting and Fraud Examination

Auditing and Assurance Services

Brink's Modern Internal Auditing, A Common Body of Knowledge