Question

Q1: Discuss three types of accounting anomalies and define why they are important to a fraud investigation and why the fraud examiner should be mindful of these anomalies?

Q2: Define circumstantial evidence and describe why this type of evidence is so useful to a forensic accountant during an investigation.

Answer 1

Solution:

Question 1: Discuss three types of accounting anomalies and define why they are important to a fraud investigation and why the fraud examiner should be mindful of these anomalies?

Answer: The three types of accounting anomalies are post earnings announcement drift (PEAD), accounting based value glamour strategies and accrual strategies. These three anomalies are very important for detection of fraud in accounting. The accounting based trading strategies helps to take position based on the extreme realization of the various accounting signal, buying and selling stock with most favorable signals. The strategy’s profitability is measured by the abnormal return to the long minus short term position of the business strategy. The accrual strategies in other hand helps to identify the income and expenses accrue for the year and also the outstanding liabilities and accrued assets are measured through this policy.

Question 2: Define circumstantial evidence and describe why this type of evidence is so useful to a forensic accountant during an investigation.

Answer: Circumstantial evidences plays an important role in the forensic audit and investigation. The same should be identify by the accountant on the basis of the specific indication. The circumstantial evidences help to define the status of current and foreseeable future. This process will identify the situation on the basis of the indicators and position so that the business strategies can be made on according with the same. This process looks after the going basic accounting assumption and if the same are violated then the preventive steps are taken by the forensic accountant during an investigation.