Question

Chapter 1 - Review Question

1. Define fraud and identify a potentially fraudulent situation.

2. Differentiate between fraud and abuse.

3. Describe the services that a forensic accountant might provide related to a marital dispute.

4. Explain the differences between an audit, fraud examination, and forensic accounting engagement.

5. Explain the theory of the fraud triangle.

Answer 1

(1) -- Define fraud and identify a potentially fraudulent situation.

Answer -

Fraud is an intentional deception, whether by omission or co-mission, that causes its victim to suffer an economic loss and/or the perpetrator to realize a gain.

A potentially fraudulent situation is disclosing confidential or proprietary information to outside parties.

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(2) -- Differentiate between fraud and abuse.

Answer -

Although both fraud and abuse involve an intentional deception that causes its victim to suffer an economic loss and/or the perpetrator to realize a gain, abuse does not rise to the level of fraud.

Abuse is used to describe a variety of petty crimes or counterproductive behavior, such as surfing the web in work hours, getting to work late or leaving early, using sick leave when not sick, that have become common and even silently condoned in the workplace.

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(3) -- Describe the services that a forensic accountant might provide related to a marital dispute.​​​​​​​

Answer -

A forensic accountant may assist attorneys with assembling the financial information necessary to either bolster (if hired by the plaintiff) or undercut (if hired by the defendant) a case. This may include, for example, locating hidden marital assets or income, calculating the present value of future cash flow from retirement plans and providing testimony in the case.

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(4) -- Explain the differences between an audit, fraud examination, and forensic accounting engagement.​​​​​​​

Answer -

Audits are conducted on a regular recurring basis while a fraud examination is nonrecurring and is only conducted on sufficient predication. A forensic accounting engagement is also nonrecurring and is only conducted after an allegation of misconduct.

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(5) -- Explain the theory of the fraud triangle.

Answer -

The fraud triangle provides an explanation for the conditions necessary for fraud to occur - perceived pressure, perceived opportunity, and rationalization.