What is Forensic Accounting

The Panel Discussion
of International Accounting Seminar
Brawijaya Accounting Fair 2008
Exploring the Dark Side &
Strengthening the Bright side of
Accounting
I Gusti Agung Rai, MA, Ak.
(Member of Audit Board of the Republic of Indonesia-BPK RI)

Agency Theory (white side)
Principle
Attest function
Accountability function
Accountability
Accounting
GAAP
Auditor
Audit function
Agent

Special Audit (dark side)
Principle
Attest function
Asymmetric Information
Fraud
Fraud Accounting
Auditor
Investigative audit
Agent

AGENDA
What is the Forensic Accounting (FA)
and Accounting Fraud (FA);
The relation between FA with AF;
Example of AF in private sector as
well as in public sector;
How the forensic accountant disclose
the AF; and
How FA deals with AF

What is Forensic Accounting
The Merriam Webster’s Collegiate Dictionary:
relating or dealing with the application of
scientific knowledge to legal problems
D. Larry Crumbley:
Simply put, forensic accounting is legally
accurate accounting. That is, accounting that is
sustainable in some adversarial legal
proceeding, or within some judicial or
administrative review.

The Practice Forensic Accounting
in Indonesia
BPK (Audit Board)
The Police,
The Attorney General,
PPATK, and
The Corruption Eradication
Commission (KPK)

What is Fraud?
Fraud: a violation of the law, planned
deceit and dishonesty.
Types of white collar crime:
embezzlement, larceny, concealment of
information, concealment of liabilities,
concealment of facts, engineering of
facts, and corruption
(Razaee, 2002)

What is Accounting Fraud
Accounting fraud: The use of one’s
occupation for personal enrichment
through the deliberate misuse or
misapplication of the employing
organization’s resources or assets.
Major types of occupational fraud:
Corruption, Asset Misappropriation, and
Fraudulent Statements
(Source: ACFE)

Agency Theory
Concealed
Information
Adverse
Selection
Agency Theory
Agency Problem
Asymetric Information
Concealed
Action
Moral
Hazard

Fraud tree
Source:
ACFE

Fraud behavior
Source:
ACFE
Perceived Opportunity
Pressure Rationalization

Relation between Forensic Accounting
and Accounting Fraud
forensic accounting is carried out to
investigate financial statement related
fraud, by using some investigative audit
techniques
Several traditional audit techniques can be
used to perform investigative audit, such as
physical examination, documentation
review, re-performance, and inquiries
CFE: the forensic accounting/investigative
audit has emerged to be a profession

Frauds in Indonesia
Indonesia is one of the most corruption
countries in the world (rank 143 of 179 with
score 2.3)
Prof. Dr. Soemitro once estimated that the
fraud in procurement could involve as much as
30% of procurement budget
BI’s Liquidity Supports (BLBI)
All sectors/segments: law, representative,
state owned company, central/local
government
Special case with World Bank

Frauds in Indonesia
Source:
www.transparency.org

How the forensic accountant disclose
the accounting fraud
(Source: Ilya Avianti, Transaction Fraud in Financial Statements as a Modus of Corruption,
in The Audit Forum, August 2008)

Budgetary Process

Follow the money - Bank Bali Case
(Source: Kompas,
7 Nopember
1999)

How forensic accountant deals with
fraud accounting
The objective of the forensic accounting
is to proof whether the incidence of
fraud happened or not.
At the end of the audit, the forensic
accountant/investigative auditors should
be able to provide adequate, sufficient,
and reliable evidence to answer the
audit objective.

How forensic accountant deals with
fraud accounting
If the auditors concluded that there is
an incidence of fraud, the evidence
obtained during the audit could be used
for litigation.
Article 14 of Law 15/2004: during the
audit BPK found the indication of fraud,
the BPK should report in appropriate
time such incidences to the legal
institutions authorized by law to deal
with such incidences.

Thanks you