Question

1) John Smith, a forensic accountant, is assisting counsel in a matrimonial engagement. One of John's duties is to determine whether adequate documents are requested during discovery. Name and discuss the benefits of using three documents that are generally helpful in locating assets, liabilities, income, and expenses in divorce settings.

2) Harmon Company, a small retailer of small electrical devices, such as cell phones and cameras, suspected that one of its employees was skimming cash at the point of sale. What effect, if any does this have on financial statements, and how might Harmon investigate this theft?

Answer 1

Answer 1):-

Discovery of document related with assets :-

• Purchase invoice
• Physical existence
• Bank document related to charges of assets
• assets register

Discovery of document related with liabilities:-

• Bank debt.
• Mortgage debt.
• Money owed to suppliers (accounts payable)
• Wages owed.
• Taxes owed.

Discovery of document related with income:-

• income tax return
• salary slip

Discovery of document related with expense:-

• cash book
• expense register
• chque book folio

Answer 2):-

Effect of theft in the financial statment:-

Financial statement fraud is the deliberate alteration of the company's financial statements in order to mislead the users of financial information and create a rosy picture of the company's financial position, performance, and cash flows. Typically, financial statement fraud is propagated by management to achieve desired objectives. For instance, management of a company that is obtaining bank approval for a loan may misstate their financial statements to create an impression that they can very well pay for such loan. Management of a firm may misstate financial statements to make their stock attractive to investors and consequently, increase their stock price. Further, management may misstate financial statements to justify their bonuses and increased salaries. This usually happens when management compensation is tied to company performance.

investigation :-

• using CCTV camera
• matchng with cash book
• maintain strong internal controls

Impact on financial statement:-

This may impact on true picture of profit , income statement may show worng profit and loss and the purpose of true and fair will not be fulfilled.