Financial Statement Fraud: Strategies for Detection and Investigation

PART FIVE

Detection and Investigation

UNDERSTANDING HOW FINANCIAL STATEMENT FRAUDS are perpetrated is the most important consideration in detecting these schemes. And that has been the sole focus of Parts I through IV. In this part, we turn our attention to other aspects of detection and investigation, including:

• Understanding the motives behind financial statement fraud, so that its warning signs can be recognized early
• Recognizing the red flags of financial reporting fraud
• Using a variety of ratios and other analytical tools as elements of a financial statement fraud detection program
• Other procedures that can reveal the existence of fraud
• Addressing the issue of intent—is a misstatement in the financial statements merely an honest misstate, an overly aggressive interpretation of an accounting standard, or an intentional act to commit fraud?
• Assessing (or, for the auditors, minimizing) auditor liability in situations in which financial statement fraud occurs