Forensic Accountants and Their Role Essay

Download this Essay in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Essay:

In the late 1990s, this was not a problem as the stock was continuing to climb to all-time highs. However, once the economy began to slow, is when this strategy backfired by forcing them to issues more stock to cover these losses. As shares were declining, many investors became weary of continuing to participate in these activities. (Healy, 2003)

In late 2001, these activities were brought to the attention of regulators and investors (which resulted in the eventual bankruptcy of the firm). This is illustrating how forensic accounts overlooked or ignored key areas that could have uncovered fraudulent activities. As a result, one could argue that the lack of ethics and the close relationship with company executives helped to perpetuate these abuses. (Healy, 2003)

Insider Trading

Another type of fraud that is most prevalent is insider trading. This is when executives will have specific knowledge of the financial situation surrounding the firm and they will begin purchasing or selling the company's stock in advance. The basic idea is to take advantage of the price irregularities before the rest of the market has a chance to discover what happened. In forensic accounting any kind of large buys or sells could be a sign that executives are aware of this information. This is a violation of the Securities and Exchange Act of 1934. As the law, requires that executives must disclose (to the SEC) their intentions in advance of conducting the transaction. (Jagolizinnger, 2009) (Bettis, 2000)

However, most executives will often say one thing to: their employees, regulators and the general public. Yet, privately they will be engaging in activities that are in direct contradiction to what they are telling others. When this happens, these individuals will receive significant advantages at the expense of stakeholders. (Jagolizinnger, 2009) (Bettis, 2000)

A good example of this occurred with World Com. During the 1990s; the company was rapidly taking advantage of deregulation in the telecommunications industry. The idea is that they could use this as a way to become a major communications and Internet provider throughout the U.S. This resulted in the firm acquiring a number of assets that helped to increase their size and market share. (Jagolizinnger, 2009) (Bettis, 2000) (Albrecht, 2006)

To achieve these objectives, management would often use their common stock as currency and acquired significant amounts of debt. The problem with this approach is that World Com was purchasing firms with funds they did not have. This meant that these activities would normally have an adverse impact on their stock price under GAAP accounting standards. To deal with these challenges, the firm would take smaller write offs for the losses over a period of many years (versus right away). When the economy was strong, this helped World Com to grow exponentially. (Jagolizinnger, 2009) (Bettis, 2000) (Albrecht, 2006)

However, once a slowdown occurred, is when these issues became problematic for executives. This is because the company was having trouble growing their earnings through acquisition. Moreover, the previous purchases caused the debt load to cripple the firm's ability to obtain financing. This created a situation where World Com had trouble meeting their expenses. (Jagolizinnger, 2009) (Bettis, 2000) (Albrecht, 2006)

Bernard Ebbers (the CEO) realized what was happening and quickly began selling a large number of his holdings in the company. While at the same time, he was telling stakeholders and regulators that the firm was financially sound. To make matters worse, he approached the board of directors about them giving him loans to help complete his large purchases of different pieces of real estate around the country. This is a sign that Ebbers knew his company was in financial trouble and wanted to save his own investments at any cost. The fact that he did not disclose this to regulators or investors (until after these sales) is a sign that he intentionally wanted to protect himself. (Jagolizinnger, 2009) (Bettis, 2000) (Albrecht, 2006)

In this case, forensic accountants had a close relationship with the management and failed to reveal critical red flags of potential fraud. This is an indication there was a lack of ethics among actuaries. As they were willing to overlook these issues by: not questioning critical transactions, why they occurred or carefully scrutinizing the activities of executives. In many ways, one could argue that this close relationship is what allowed the fraud to continue (with the insider transactions serving as a tool to protect the net worth of unscrupulous company officials). (Jagolizinnger, 2009) (Bettis, 2000) (Albrecht, 2006)


Clearly, three areas where fraud is prevalent inside many corporations include: the misappropriation of company funds, inaccurately reporting information on financial statements and insider trading. What makes these issues so troubling; is the fact that forensic accountants often overlooked critical factors which could have identified and prevented these activities. However, because of their close relationship with company officials and a lack of ethics meant that these issues are often ignored. To deal with these challenges, all forensic accountants must have a sense of objectivity and a willingness to look out for the interests of stakeholders. If this can take place, it will be more difficult for these types of situations to develop. When this happens, stakeholders will have increased confidence in the company and the information that is provided. This should be the primary focus of forensic accountants at all times.


Albrecht, S. (2006). The Ethics Development Model. Australian Accounting Review, 16 (38), 30 -- 40.

Bettis, J. (2000). Corporate Policies. Journal of Financial Economics, 57…[continue]

Cite This Essay:

"Forensic Accountants And Their Role" (2012, September 11) Retrieved December 1, 2016, from

"Forensic Accountants And Their Role" 11 September 2012. Web.1 December. 2016. <>

"Forensic Accountants And Their Role", 11 September 2012, Accessed.1 December. 2016,

Other Documents Pertaining To This Topic

  • Forensic Accountant Must Possess Accounting

    Assets in the investment portfolio were overvalued. Financial transactions were structured to report smaller amounts of debt and create the appearance of greater cash flow. Financial results were represented in a false and misleading manner. Forensic accountants also played an important role in the Enron case by doing audits and investigating accounting practices to gather evidence of how the fraud was performed. They played vital roles in the court room

  • Skills That a Forensic Accountant Needs to

    skills that a forensic accountant needs to possess and evaluate the need for each skill. Over the last several years, the role of forensic accountants has been continually evolving. This is because there have been a number of cases surrounding their ability to identify and prevent possible frauds. As a result, various skills must be utilized in the process that will help to improve the effectiveness of actuaries. These include:

  • Forensic Accounting Is a Special Subsection of

    Forensic accounting is a special subsection of accounting that goes beyond the typical job description of an accountant. Forensic accountants use their work in courtroom and other legal settings to help. Their primary roles are litigation support and investigative accounting (Zysman, 2012). To do this, forensic accountants combine accounting, auditing, and investigative skills. However, conducting investigations is only one component of a forensic accountant's job description; they also have to

  • Forensic Accounting in Practice Over

    This means laying out for the jury and the judge the role of different parties and how this contributed to illegal activities. It is at this point when everyone can understand the full context of the case. (Singleton, 2010) (Golden, 2011) Analyze the legal responsibility a forensic accountant has while providing service to a business. The legal responsibility of a forensic accountant is to determine when fraudulent activities have taken place

  • Forensic Accounting in Practice

    roles of forensic accountants in preventing and detecting fraud within a business community. The paper highlights the requisites and basic responsibilities of a forensic accountant. The paper also makes references on the special cases where forensic accountants have assisted in fraud detection and prevention. Overview of Forensic Accounting Forensic accounting is the specialty area of accounting used to train an individual to develop the special accounting skills to detect and prevent

  • Forensic Accounting Skill Set for

    The forensic accounting done on Koss reveals the importance for a business's auditing firm's responsibilities. It also shows that an auditing firm is liable to face legal charges for failing to find a fraud in their accounting activities in a business. The forensic accounting carried out on Koss revealed that the Vice President Sujata and the former Senior Accountant, Julie Mulvane, engaged in a range of accounting fraud cover ups

  • Public Accounting Corporate Accounting and

    This role is in response to clients' demands for a single trustworthy individual or firm to meet all of their financial needs. However, accountants are restricted from providing these services to clients whose financial statements they also prepare." (U.S. Department of Labor, Bureau of Labor Statistics, 2009) 1. Public Accounting The work entitled: "The Reality of the CPA's Role" states that modern CPAs work "behind the scenes as trusted advisors in

Read Full Essay
Copyright 2016 . All Rights Reserved