Importance of Forensic Accounting in Countries of Business Opacity: A Means to End Fraud


When listening to approximately Enron, Conrad Black, Kimberly Rogers or WorldCom, one will truly consider robbery, bribery and fraud. The key word right here is “fraud”; in which many research have been conducted approximately this situation. What is fraud and the way is it detected and treated, and how is it feasible to be protected from it? Such questions and their solutions are key terms within the area of forensic accounting, due to the fact that fraud has performed a chief role inside the lifestyles of accounting, consequently forensic accounting. Understanding fraud is essential for folks who need to apprehend what Forensic Accounting is, how it has come into the system, the way it exactly deals with the issues we are facing, and to what degree it has helped in positive problems of fraud, or even in strengthening the accounting device in standard (Economist Intelligence Unit, 2007) accountants birmingham.

Research has been performed on fraud and has been given special definitions, all which come consistent with one another. Other researches have been achieved to highlight the job of internal controls in minimizing the threat of robbery or misappropriation. However, little research become finished on forensic accounting diffusion and proper implementation.

Fraud activities had been manipulating, stealing, and destroying many organizations and industries. To face such harmful trends, fraud examination has been created; and superb efforts were exerted to detect, check out, and prevent similar acts from encountering. These preventions have shed lights on a new concept and practice called “Forensic Accounting (FA)”, which has grow to be a common belief to fight in opposition to fraud and comparable unethical acts. No depend how much fraud sports boom, there have to always be an anti-fraud scheme to shield against it. To provide availability of stability and safety is the principle motive why FA existed.

Nonetheless, the felony, supervisory, and regulatory structures of financially corrupted countries create great possibilities and gear for the laundering and safety of the proceeds of crime, and allow criminals who make use of those structures to significantly increase their chances to keep away from powerful research or punishment. A us of a’s dedication to bank secrecy and the absence of positive key supervisory and enforcement mechanisms aimed toward preventing and detecting cash-laundering growth the opportunity that transactions related to the u . S .’s entities and bills may be used for unlawful purposes.

Since one of the most effective equipment used these days is forensic accounting, it’s miles wonderful to have a look at its viable implementation in international locations with business opacity, and to probe the critical methods needed to establish the implementation of this manner in distinct sectors and at many ranges. Therefore, a good way to reap these goals, there is a need to analyze the following research query: “What are the conditions of possibility for implementing FA in a rustic characterized via an opaque financial quarter?” More especially, this research has targets:

1. To identify the best way to highlight the importance of the use of forensic accounting hobby so as to clear the roads of the future of business sports; by using studying from beyond errors which includes Enron and WorldCom and via the usage of different cases of financial fraud just like the worldwide ones.

2. To perceive the way to diffuse and enforce forensic accounting as a essential tool that, when used professionally, can substantially help fight towards fraud interest.

Moreover, the gap is that forensic accounting is not recognized in many nations. FA isn’t so much spread within the global, it is most effective acknowledged in USA and some evolved international locations. The have a look at is contributed in finding the fine way to put in force FA specially with the prevailing hole, with the objective of protecting it specifically due to the fact it is so hard to enforce forensic accounting particularly that it isn’t always diffused worldwide. The objective is to arrive at a solution to the studies query and to expose how forensic accounting can be carried out inside the nations characterised with the aid of an opaque economic zone; the general goal is to acquire this purpose.

Literature Review

Different studies has been conducted to define fraud inclusive of the types of fraud which include that of Gilbert (1997, p. 124) who described “fraud” as: “an act the usage of deceit including intentional distortion of the fact of misrepresentation or concealment of a fabric truth to advantage an unfair benefit over another with a purpose to relaxed some thing of cost or deprive another of a right. Fraud is grounds for placing apart a transaction at the option of the birthday party prejudiced by means of it or for healing of damages.”

Farrell & Healy (2000) revealed approximately fraud this is increasing international and is becoming greater high-priced to corporations every year as fraudsters use elaborate strategies to devote and cover their criminal acts. Consequences of fraud can vary from public morality corrosion, weakened religion within the organization, to loss in market valuation and self belief of stakeholders.

With the numerous definitions attributed to fraud, other studies performed highlighted the significance of having internal manage that might restrict the non-stop fraudulent behaviors. External audits also are undertaken to make sure that internally instituted fraud control mechanisms are good enough in scope, effective in application and complied with. However, it’s far pretty unlucky to word that the complexity of the human brain and its dynamic method of reasoning have rather diversified gift-day scams far from the hitherto recognised modes of fraudulent activities that now render true company governance ideals nearly unworkable.

It is consequently worth citing that in an try to save you fraud, the Auditing Standard Board (ASB) in 2002 issued the Statements of Auditing Standard ninety nine (SAS ninety nine) which delivered a “Fraud Triangle”. Fraud Triangle shows that the probability of committing fraud is high in conditions when managements or other employees have incentive or are beneath economic stress, the conditions that offer opportunities for management or personnel to commit fraud exists, or the moral values or characteristics that cause management or personnel to rationalize the fraudulent act exists (Maranjan, 2010).

Fraud may be detected and investigated to prevent the possible damages the hobby can cause. So what recommendation could a forensic accountant give to a enterprise suffering from fraud interest? A professional can list 4 things that can be accomplished to mitigate the occurrence of fraud and they consist of fraud prevention, fraud detection, fraud investigation and observe-up criminal movement or decision. The anti-fraud application of any corporation have to attention on all four.

The past two many years have witnessed good sized modifications inside the commercial enterprise surroundings consisting of globalization, technological advances and now with stated high-profile financial scandals, methods to enhance public agree with and investor confidence in monetary reviews. Emerging regulatory, social, monetary, ethical, and legal demanding situations going through the sector of agencies contribute to an growing call for for FA that encourages accounting.

A take a look at performed in October 2003 assures that the call for for an hobby in FA will hold to increase within the destiny and extra accounting packages are being planned to offer FA training, The enterprise network and the accounting career are deeply concerned with pronounced monetary and accounting scandals. However, few to none research were conducted to take a look at the proper diffusion and implementation of forensic accounting within the nations of opaque enterprise practices.

Research Framework

Many elements in a rustic’s business mechanism make a contribution to the fraudulent behavior in the financial sectors. For instance, being considered as a tax haven u . S . A . With banking secrecy rules, cash laundry sports and occasional company governance, fraudulent activities turn out to be smooth to commit. All of this effects in a countrywide huge corruption triggering the need to introduce FA. However, because of the opaque economic nature of the u . S . And previous to the creation of FA, main changes has to be finished to put together the united states of america for the diffusion and implementation of FA on each the macro and micro ranges mentioned earlier.

The causes for corruption of which numerous exist in most corrupted countries as it changed into previously referred to, are attributed to the absence of dysfunctional key anti-corruption institutions, the lack of knowledge on corruption, its reasons, results and the weak legal framework and the absence of proper legal implementation mechanisms. Adding to those are the confessional and feudal mentalities, inefficiency of supervisory bodies, low salaries of public region employees, political affects at the judiciary, the absence of civic education, foreign interference in domestic affairs, selective or lenient enforcement of the law, and the inefficient media. In different phrases, the elements contributing to the fraudulent enterprise practices may be categorised below four belief; culture, training, control and authorities and legislation. Whether it’s far the lack of knowledge concerning FA (way of life and schooling) and the benefits it may bring, corrupt practices of control and the inefficiency of supervisory board or absence of a regulation that enforces FA (government and law), the four classes ought to be tackled to position an give up to the continuous fraudulent acts.

For instance, the shortage of whistle-blower protection legal guidelines averted citizens from reporting on political corruption inside the legislature or other sections of government. In the personal and public sectors, the dearth of an get admission to to records regulation, a whistle-blowers’ safety regulation, conflict of hobby law and other disclosure and transparency mechanisms is a main obstacle to integrity.

Results and Discussion

The literature overview defined the distinct that means of fraud, forensic accounting, and the characteristics of an opaque business u . S . A . And how can FA assist in proscribing fraudulent behavior that is making it smooth for money launderers to continue their illegitimate practices. Furthermore, FA can serve as a liberator for international locations with opaque business practices such Luxembourg, Austria, Lebanon and lots of others, setting an give up to all the enterprise corruption taking vicinity on the different sectors of the usa, be it government or some other personal or public zone. However, to obtain the first-class outcomes of FA, a right diffusion and implementation system ought to take region that requires the paintings of the events in a country, be it government itself, human beings’s view and consciousness of FA at the cultural foundation, the companies that have to require from its personnel to be aware of FA and to appoint forensic accountants as properly and universities and other academic institutions that endure on its capacity to train FA.

Countries with opaque business practices tend to share comparable characteristics that justify the superiority of fraudulent sports. As it become referred to in advance, the elements that make contributions to the fraudulent behavior in the financial region can be categorized under 4 categories; subculture, government and regulation (macro-degree), management, and education (micro-stage).

The importance of adopting forensic accounting is as a result highlighted, but, the process of advent isn’t always an immediate method. On the opposite, it requires time and effort in terms of moving cultural consciousness to recognise the importance of FA. That being stated, the authorities as a number one facilitator and the instructional systems must take part in creating recognition and shifting cultural mentality towards FA. Managements should also teach personnel on FA and to adopt it as part of its device.

A. Forensic Accounting in Culture

Koh et al., (2009) performed a take a look at to examine the recognition stage of the general public in Malaysia regarding forensic accounting. The observe found out that troubles get up from the truth that FA carrier continues to be new to maximum of the groups or even to the general public in Malaysia. This results in confusion a number of the public and a few may additionally even be ignorant of the life of the machine. Therefore, the significance of the service is ignored (is going unnoticed).

Two variables affect the attractiveness stages of the public for the exercise of forensic accounting as the primary tool in investigating a organization’s account to locate fraud. The variables consist of the public’s understanding degree on forensic accounting functions and the belief concerning the implementation of forensic accounting within the investigation. The information stage of the public and the functioning of forensic accounting will decide whether or not the general public in Malaysia will accept it as the primary tool in investigating a company’s account in case of fraud. The notion of the public on the implementation of forensic accounting in the research of a organization’s monetary assertion additionally determines the acceptance stage of forensic accounting in the usa.

This examine suggests the significance of two fundamental components that should be to be had to create a ground for forensic accounting implementation; these elements are focus and know-how of forensic accounting as an anti-fraud tool and the belief of enforcing forensic accounting, wherein these two factors are taken into consideration as predominant elements for the level of reputation of such tool.

In different words, if a alternate is made in cultures of financially corrupted and opaque commercial enterprise practices, it’s going to bring about adjustments in the human beings’s practices, norms, and values, therefore their behaviors; on the quit, it’s going to create an focus and information approximately fraud and a way to fight it and the gear that would be used to inhibit it. In addition, this system further applies to forensic accounting.

B. Forensic Accounting in Education:

Although there may be a developing call for for fraud and forensic accounting globally, a lot of its development and adoption within the accounting curriculum in the universities are taking vicinity inside the evolved economies. The adoption of forensic accounting into the colleges accounting curriculum has a massive capacity to beautify college students’ skills and capabilities and may be used as a veritable aid from which fraud will be mitigated.

Many cases display that folks who dedicate fraud are not always geniuses or have a creative thoughts. They are usual accountants who reproduction fraud schemes from the beyond. Therefore, the importance of the packages for fraud prevention/detection education and education is emphasized, and the question is raised approximately whether the enterprise college at universities gives enough applications to teach accounting and auditing professionals for fraud prevention/detection.

Forensic Accounting isn’t always best constrained to college programs, there’s additionally a specialised certificate that is involved with forensic accounting, that is the Diploma in Investigative & Forensic Accounting (DIFA) program. DIFA is designed to provide a broad range of expertise and capabilities to carry out economic investigations. This variety consists of accounting, audit, profits tax information, fraud know-how, understanding of regulation and policies of proof, an investigative mentality and critical skepticism, expertise of psychology and motivation, and sturdy communication skills.

The DIFA program focuses on expertise and capabilities that may be quality taught and examined in character: inclusive of dealing with a face-to-face assembly with a client, interviewing capabilities, and attesting in court as an expert witness.

In end, the base of forensic accounting is a understanding in accounting, auditing, internal controls, chance evaluation and fraud detection, a fundamental information of the felony surroundings because the criminal surroundings is essential to be able to aid the litigation, acknowledging their competence, acquiring a diploma specialized in forensic accounting which may be given by educational institutions that grant certifications such as DIFA. These formal certificate can deepen the students’ information and sharpen their competencies in forensic accounting.

C. Forensic Accounting in Management:

Poor company governance will lead a sure character or a collection of humans with the same interest to behave upon it to commit fraudulent activities inside the organization. This may be reinforced by way of the reality that top-stage control have to follow the guidelines of the firm, so one can assist the corporation to perform higher.

Even if a company applies true inner manipulate systems, the control will still be the major component influencing the implementation. Companies must look in the direction of new approaches in place of comply with the traditional approach, as forensic accounting can be the next excellent alternative in resolving troubles.

Loebbecke and Willingham (1998) finish that the chance of cloth financial misstatements because of fraud is a feature of 3 factors. The factors include the degree to which the ones in authority in an entity have cause to devote management fraud, the degree to which situations permit managerial fraud to be dedicated, and the volume to which those in authority have comply to ethical values that could facilitate fraud commitment. These 3 factors show that the management ought to absolutely dedicate fraudulent activities considering the fact that the general public inclusive of shareholders are ignorant of the countermeasure to be taken to prevent monetary crimes. It argues that there need to be a set of pointers created for the public and control to make sure that actions have to be taken when financial fraudulent sports occur.

The foremost trouble or issue is the regular misunderstanding of the function and duty of the auditor as the general public expects auditors to hit upon monetary asset misstatement or maybe fraudulent sports from the monetary statements. This has been the lengthy perception of what an auditor’s responsibilities are. Therefore, this notion have to be regenerated and corrected. Auditors with forensic accounting background might be allotted as forensic accountants specifically to research the corporation’s economic statement. These people could be responsible for detecting monetary misstatements. With the proper training given to the public, this notion of auditors may be improved.

D. Forensic Accounting in Government and Legislation:

Forensic accounting has performed a primary role within the development of detection, research, and illustration of all instances to hand in law courts in judicial formalities.If corporations desire to make use of records concerning a fraudulent hobby in a court regulation, they’ll accumulate the capabilities of forensic accountant due to the fact they could cope with investigations in a manner that is completely proper in a court docket of regulation.

Forensic accounting is the strong point exercise region of accountancy that describes engagements due to real or anticipated disputes or litigation. “Forensic” means “suitable to be used in a courtroom of law,” and it’s miles to that widespread and ability final results that forensic accountants typically need to work. Forensic accountants regularly must provide expert evidence on the eventual trial.

Forensic accounting have to be part of crook research, for the subjects regarding economic implications where the document of forensic accountants should be considered as proof and evidence to be provided in court docket trials.

Countries that established forensic accounting of their criminal system, have forensic accountants who work with law enforcement and the district legal professional’s workplace. Just as with different kinds of proof, the prosecution obtains search warrants to locate monetary data and compel knowledgeable human beings to conduct or maintain interviews about the state of affairs in query.

Forensic accountants also can offer litigation aid. Attorneys interact the services of forensic accountants to study current documentation and testimony and give an explanation for their financial importance. A forensic accountant can tell the attorney about the additional statistics needed to show the case and inquiries to ask the witnesses. The forensic accountant can also evaluate damaged reports and kingdom whether the report was prepare accurately and supports the case.

Government organizations just like the FBI, the Internal Revenue Service, and the Bureau of Alcohol, Tobacco and Firearms have forensic accountants to analyze the whole lot from money laundering and identity-robbery-related fraud to arson for profit and tax evasion. Law companies regularly use forensic accountants to help divorcees uncover their exes’ hidden assets.


This article deals with the importance of having an investigative device that could restrict the common financial frauds and business opacity taking region international. In this context, forensic accounting has been provided as a device to inhibit the triumphing frauds, cash laundry and theft. However, to the attain better consequences forensic accounting ought to be nicely diffused and carried out with a remarkable emphasis on enhancing public (cultural) cognizance, attributing a primary function to managements, education and governments/regulation.

For example, the public can be ignorant of the significance of forensic accounting and might lack the wished understanding for enforcing it in investigative matters. Thus, the need to contain forensic accounting in the culture of financially corrupted nations if you want to create focus of forensic accounting as an anti-fraud tool and the method of imposing it inside the investigation of economic statements. This step may be treated by using government and law as primary facilitators.

Furthermore, the importance of adopting forensic accounting within the universities’ accounting curriculum is highlighted in particular that the demand for it’s far growing progressively. Such adoption has a big capability to decorate students’ abilities and competencies and can be used as a veritable aid from which fraud may be mitigated. Fresh graduates can as nicely achieve a diploma in Investigative & Forensic Accounting (DIFA) application that provides a broad range of know-how and abilities to perform economic investigations.

As for managements, there is a need to develop a proper corporate governance and inner manipulate systems wherein the ones of high authority are held liable and accountable for any fraudulent and unethical misbehavior.

In sum, it is by hook or by crook a long manner to start incorporating forensic accounting in instructional curricula. A first step that desires to be set up is growing focus on moral problems. As it became mentioned, cultural shifts toward the significance of FA is must be maintained, governments, rules, academic structures in addition to managements must percentage their part within the diffusion and implementation of forensic accounting.


Farrell, B. R., & Healy, P. (2000). White Collar Crime: A Profile of the Perpetrator and an Evaluation of the Responsibilities for its Prevention and Detection.