Principles of Accounting

2008 words | 6 page(s)

Abstract
Within the accounting profession, one of the most crucial duties of any organizational member at a firm is the detection and deterrence of accounting fraud. While fraudulent activity is by no means a commonplace behavior at the majority of accounting firms, it occurs from time to time, and must be recognized and dealt with immediately. When one rogue member of an accounting firm engages in fraud, and such activity comes to light, it can make the entire organization and the accounting professions appear negative. As such, all accounting firms should have clear definitions within their organizational policies as to what actions constitute “fraud,” and perform regular audits of the work performed by all employees to ensure that such activity is not taking place. Furthermore, an accounting firm should have clear procedures for dealing with such activity, and ensuring that offenders are quickly disciplines and/or terminated from their positions. It is up to the larger organization to take responsibility for the detection and elimination of accounting fraud, for if such activity is discovered by a third party, such as another accounting firm, a professional board, or even law enforcement agencies, this information can essentially destroy the organization.

Fraud Detection and Deterrence
Within the accounting profession, one of the most crucial duties of any organizational member at a firm is the detection and deterrence of accounting fraud. While fraudulent activity is by no means a commonplace behavior at the majority of accounting firms, it occurs from time to time, and must be recognized and dealt with immediately. When one rogue member of an accounting firm engages in fraud, and such activity comes to light, it can make the entire organization and the accounting professions appear negative. As such, all accounting firms should have clear definitions within their organizational policies as to what actions constitute “fraud,” and perform regular audits of the work performed by all employees to ensure that such activity is not taking place. Furthermore, an accounting firm should have clear procedures for dealing with such activity, and ensuring that offenders are quickly disciplines and/or terminated from their positions. It is up to the larger organization to take responsibility for the detection and elimination of accounting fraud, for if such activity is discovered by a third party, such as another accounting firm, a professional board, or even law enforcement agencies, this information can essentially destroy the organization. Thus, all members of an accounting firm must take responsibility for ensuring that accounting fraud does not take place, and take the appropriate action that is necessary to eliminate such criminal behavior, and to provide deterrents from its taking place ever again. In essence, fraud detection and deterrence is the responsibility of all members of an accounting organization.

puzzles puzzles
Your 20% discount here.

Use your promo and get a custom paper on
"Principles of Accounting".

Order Now
Promocode: custom20

With all of this in mind, it is also important to keep in mind that, in any organization, everything is not always “black and white,” and a certain amount of discretion and prudence is necessary in situations in which one suspects that a colleague may be engaging in accounting fraud. For instance, if one notices that the ledgers of a colleague often do not seem to make sense, or it appears that they may be fabricating information, it is not necessarily the case that the colleague is engaging in fraud, embezzlement, or any other criminal activity. It may simply be the case that the employee in question did not understand the task, were careless, or may have even been instructed by their supervisor to create ledgers in such a manner. In these instances, the wisest course of action for an accounting professional is to call attention to the suspicious entries to one of their supervisors. However, if management does not seem to care about the potentially fraudulent activity, or worse, rationalizes or condones the behavior, the best course of action would be for the ethical accounting professional to begin looking for work at another organization. It may be the case that there is a culture of corruption at the particular organization, and it is almost impossible for one employee to successfully combat an unethical organizational culture. Further, the accounting professional may consider reporting the potential accounting fraud to the appropriate agency, which might be the Securities and Exchange Commission (SEC), the accounting board in the state in which the firm is located, or even the Internal Revenue Service. However, in such a situation, the accounting professional may want to think very carefully prior to blowing the whistle on a former employer. Once again, the fraudulent activity may have simply been a matter of perception, and it may be extremely difficult to find another job in the accounting field if one gains a reputation as a whistle blower.

Internal Control
With regards to ensuring that fraudulent activity is kept to a minimum in any accounting organization, one the most important activities is that of internal control. Internal control refers to a group of practices within a firm that serve as a system of check and balances upon all organizational members to ensure that all work is legitimate and that it does not make the firm vulnerable to accusations of fraud. A proper internal control framework consists of seven primary activities, which are as follows: separation of duties, access controls, physical audits, documentation, trial balances, reconciliations, and approval authority. When all of these procedures are properly carried out within an accounting firm, it is then possible for the organization to identify potentially fraudulent activity before it gets out of control, and to identify the organizational members who are responsible for such practices. As has been stated previously, suspicious ledgers or accounting numbers are not always indicative of accounting fraud or any other criminal activity. It may simply be the case that the employee or employees responsible for the erroneous information may have not performed the job well, or may require training on specific procedures. That being stated, it is crucial for an accounting organization to develop and implement a rigorous procedure of internal control, in order to ensure that the clientele of the firm are well served, and that such errors do not put the entire organization in the position of having to answer the questions of external auditors or even risk the possibility of a lawsuit or criminal investigation. Further, the presence of a robust internal control department within an accounting firm serves as a visible deterrent to employees who may be considering fraud, and as such, can eliminate the possibility of this activity ever occurring.

The seven procedures that are indicated for internal control within an accounting organization are uniform and clearly laid out, so that all members of the profession are aware of the rigor that is involved in an internal audit. The first procedure, which is separation of duties, entails dividing each accounting activity, such as bookkeeping, reporting, auditing, and deposits, among different employees and departments within the organization. When each aspect of the overall accounting process is divided among a group of people, there is less risk of one or two individuals gaining access to all of the materials that are required for successful accounting fraud. The second procedure within internal control, which is access controls, is a method whereby the various components of an electronic accounting system are divided among several individuals, and each component is protected by a password, and is monitored by the means of an electronic access log. As such, employees who attempt to access information for which they have no legitimate need will either be locked out of the system, and a log of their attempt will be recorded, so as to ensure that problematic individuals are identified quickly. The third aspect of internal control, which is physical audits, takes place only in situations where an organization keeps cash on hand, and involves hand counting cash several times a day, in order to ensure that the electronic records match up with the finances that the firm or other organization has taken in for that day. The fourth aspect of internal control, which is documentation, ensures that a uniform system of record keeping is maintained within a firm, and that several individuals are engaged in the auditing process. The fifth aspect of internal control, trial balances, involves double entry accounting procedures to ensure that all assets are regularly accounted for within the process. The sixth aspect of internal control is reconciliation, which ensures that the balances within the accounting books and electronic records match perfectly with the records that are maintained by external entities, such as banks or investment firms. The seventh component of internal control, which is approval authority, is the process by which only a select number of individuals within the accounting firm have the authorization to approve final reports. In summary, a robust system of internal control within an accounting firm is a means by which an organization can ensure that fraudulent accounting processes, or the appearance thereof, can be maintained at a minimal level.

Certifications
In the realm of fraud detection and deterrence within the accounting profession, there are several professional specializations that one can undertake in order to assume a prominent role in this practice. The first of these specializations is that of a Certified Fraud Examiner, or CFE. In order to qualify for this certification, an aspiring CFE must take several courses that detail the types of fraud that are common within the accounting profession, the detection of these practices, and the manner in which to combat them. After taking the required courses, the aspiring CFE is then required to take an examination to prove that they have mastered all of the requisite course material.

The second specialization within fraud detection and deterrence in accounting practice is that of a Certified Internal Auditor, or CIA. As with the CFE, there are several courses and examinations that one must take in order to qualify for this certification, but the effort is well worth it. Within the accounting profession, CIAs are highly sought after because of their proven expertise in accounting fraud detection and deterrence, and these specialists often make more than $38,000 USD above and beyond the typical entry level employee in an organization. Once hired, a CIA is chiefly responsible for the implementation of the internal auditing and control process within an accounting firm, and is typically entrusted with a great amount of authority within an organization. Due to their central role in the detection and deterrence of accounting fraud, CIAs often face the unpleasant task of confronting colleagues whose work and electronic login information indicates that they may be engaging in accounting fraud. In many regards, the CIA might be compared to the internal “police officer” of an accounting organization, and their presence in a company is often more than enough to ensure that organizational members do not engage in fraudulent activity.

The third specialization within fraud detection and deterrence in accounting is that if a Certified Information Systems Auditor, or CISA. The training and examination requirements for a CISA are fairly more stringent than those required of a CFE or a CIA. The primary responsibility of a CISA is to monitor and examine all of the electronic activity that is undertaken by employees within an accounting form or department, and ensure that such employees are not engaging in any suspicious activity online. Such suspicious activity might involve attempting to access information to which they are not authorized, or information that they do not require in order to complete the tasks that have been assigned to them. Further, CISAs are also expected to ensure that employees do not engage in any electronic communication that could be interpreted as illegal, unethical, or unprofessional. For instance, the privacy of client and company records is one of the most crucial responsibilities of an accounting firm. Even if employees were to engage in casual conversation about a client and their financial activities, such behavior could be construed as unethical, and it is the role of a CISA to ensure that these activities do not occur within the context of an accounting firm.

puzzles puzzles
Attract Only the Top Grades

Have a team of vetted experts take you to the top, with professionally written papers in every area of study.

Order Now