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Volume 6: Issue 3, Special International Issue, 2014

JFIA

Volume 6: Issue 3, Special International Issue, 2014
 
This Special International Issue focuses on forensic accounting in Anglo-American countries and is aimed at facilitating greater cooperation and understanding of forensic accounting internationally by comparing the legal, organizational, institutional, and political environments in which forensic accountants practice. 
 
This Special International Issue includes papers discussing forensic accounting in five Anglo-American countries: Australia, Canada, Ireland, South Africa, and the United States. In addition, Quebec is included even though it is a part of Anglo-phone Canada. However, Quebec is a Franco-phone province and maintains its own cultural, legal, political, and institutional environments.
 
In addition to comparing forensic accounting in Anglo-American countries, this Special Issue includes three international case studies: two from China and one from Japan. We hope to publish future special international issues with papers from other countries and regions.

Table of Contents


Regulation, Compliance and the Australian Forensic Accounting Profession | Full Article (PDF)
Jeanette Van Akkeren
Julie-Anne Tarr
 
Abstract: The multidisciplinary nature of forensic accounting in Australia has created significant challenges in ensuring appropriate regulatory governance structures are in place. For the most part practitioners in this field are co-regulated through professional accounting bodies and under affiliate statutory provisions.  As Australia lacks regulatory provisions for accountants not within this framework, however, those operating outside this umbrella are subject only to broader catch all legislation such as consumer protection provisions and specialized expert witness requirements. Globalization and outsourcing of key services in this context further complicates ensuring effective consumer protection touchstones are in place.  Debate on whether - and how - to formalize this framework is active and contentious. In part this is due to the rapid expansion of this field and the flow on effects it has; in part it joins broader debate regarding national regulation of Australia’s professions generally and the country’s broader competition policy objectives. Given domestic and international concern over ensuring high quality service provision in the emerging forensic accounting discipline, this issue is likely to be of mounting concern in the next several years. This paper sets out Australia’s regulatory background and the context against which such changes must be formulated, issues and tensions that are emerging in this space and, in conclusion, recommendations as to potential directions forward.  
 
Keywords: Forensic Accounting; Australia.

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Surveying the Field of Forensic Accounting in Canada Full Article (PDF)
James W. Williams
 
Abstract: This paper surveys the field of forensic and investigative accounting as it has emerged and evolved in the Canadian context. Not unlike many other jurisdictions, forensic accounting in Canada remains a highly valued yet ill-defined area of professional practice inhabited by a number of different professional and occupational groups. Persistent ambiguity as to the nature of forensic accounting, combined with the entry of players boasting a range of backgrounds and forms of expertise, has created distinct challenges with respect to accreditation, oversight, and accountability. The paper examines these challenges in the context not only of evolving forms of professional certification and self-regulation but also the larger legal environment occupied by industry practitioners. In view of the possibilities and pitfalls associated with each of these respective avenues of regulation and oversight, a number of modest suggestions are offered as to how the transparency and accountability of the industry may be enhanced in the future.
 
Keywords: Forensic Accounting; Canada.

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Forensic Accounting in Quebec: The Context of a Distinct Society in Canada | Full Article (PDF)
Maurice Gosselin
 
Abstract: The province of Quebec is one of the ten provinces of Canada. In Canada, professions are regulated at the provincial level. The regulatory framework for professions in the province of Quebec is not similar to the one of the other provinces of Canada. Professions are ruled under the ‘Professional Code’ and the provincial government created the ‘Office des professions’ to enforce the code. The control of the government over the professions is more important in such context since it is the government that supervises the professions to protect the public. Even though, these differences exist, all Accounting Societies or Order in Quebec consider mobility within Canada to be very important and attempt to reduce the impact of these differences. Litigations are also dealt with differently in Quebec since the province’s legal tradition is based on ‘civil law’ in comparison to ‘common law’ in the other nine provinces. The province of Quebec can therefore be considered as a distinct society from this point of view. These differences have an impact on the way forensic and investigative accounting is performed in Quebec. The purpose of this paper is to outline them and to discuss about their impact.
 
Keywords: Forensic Accounting; Province of Quebec; Accounting Profession.

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Forensic Accounting in a Constitutional Parliamentary Democracy: The Case of Ireland | Full Article (PDF)
Niamh M. Brennan
 
Abstract: The paper commences by summarizing the economic geography of Ireland followed by an overview of the Irish legal system. While similar in many respects to the British system from which it is derived, Ireland has a constitution based on the American model, to which parliament is subject. Lawyers and the operation of the courts in Ireland are described. While bearing some similarities to the British system, there are notable differences which are highlighted in the paper. The engagement of forensic accountants as expert witnesses in the Irish courts is considered. The paper concludes by observing that while forensic accounting is thriving in Ireland, it is at an early stage of development as far as professional guidelines and education provision is concerned.
 
Keywords: Ireland; Legal System; Expert Witnesses; Forensic Accountants; Forensic Accounting.

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Contextualizing the South African Forensic Accountant | Full Article (PDF)
Jacqui-Lyn McIntyre
Constant Van Graan
Jan Van Romburgh
Albert Van Zyl
 
Abstract: The aim of this article is to discuss the context in which the South African forensic accountant operates, with reference to the legal system and governmental entities relevant to the forensic accountant, the education offered in South Africa, the forensic accountant as expert witness, and the applicable regulatory bodies in South Africa. This article is written as part of a comparative study in conjunction with authors from various other countries.  
 
Keywords: South Africa; Forensic Accounting; Expert Witness.

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Forensic Accounting: An Anglo-American Comparison of Forensic Accounting in the U.S.A. | Full Article (PDF)
Wm. Dennis Huber
 
Abstract: This paper is part of a series of papers in this issue discussing forensic accounting in Anglo-American countries. The forensic accounting profession and the forensic accounting certification industry in the U.S. are well established, but unregulated. As of this writing there are at least six corporations that issue certifications in forensic accounting, fraud examination, and financial crimes in addition to the AICPA. Some corporations are not-for-profit, some are for-profit. Some require a college degree, others do not. Some have no, or unenforceable, codes of ethics while others have strong and enforceable codes. Some have directors and officers that have neither a college degree nor a certification in forensic accounting. While many forensic accountants hold multiple certifications, the corporations themselves are in competition with the each other and at times exhibit hostility toward the others. This paper first reviews the legal, political and economic framework of the forensic accounting profession and forensic accounting certification industry in the U.S. It then provides an analysis of the state of the forensic accounting profession and certification industry in the U.S.
 
Keywords: Forensic Accounting; Profession; Certifications; United States.

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Longtop Financial Technologies Ltd. Phony Cash From IPO Onward? | Full Article (PDF)
Hugh Grove
Lisa Victoravich
 
Abstract: A short-seller, Andrew Left, owner of Citron Research, claimed that Longtop Financial Technologies Ltd., a Chinese company, was a fraud from its initial U.S. public offering (IPO) in 2007 onward until its delisting by the Securities and Exchange Commission in 2011.  This case investigates that claim.  It is amazing if such a possible fraud went undiscovered by the IPO investment bankers, Goldman Sachs and Deutsche Bank, the secondary public offering investment banker, Morgan Stanley, and the Longtop auditors, Deloitte Touche Tohmatsu CPA Ltd., a ‘Big 4’ audit affiliate firm, registered in Shanghai.  Case requirements to determine if there were any warning signs of fraud are: 1) conduct a ratio analysis, including vertical and horizontal analyses, 2) conduct a competitor analysis, using large profitable, publicly-held Chinese software companies, listed on the Shanghai and Hong Kong stock exchanges, 3) conduct a fraud analysis, using well-known fraud ratios and models, and 4) discuss any qualitative factors that might have emerged as warning signs of fraud.
 
Keywords:  Cash; Fraud; China; IPO; Fraud Models & Ratios; Longtop Chinese IPO; Citron Research.

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Using Fraud Models and Ratios to Improve Cross-Border Forensic Analysis: Examples with Chinese IPO and RTO Companies | Full Article (PDF)
Hugh Grove
Mac Clouse
 
Abstract: A cross-border forensic analysis approach is advocated here as ‘lessons learned’ from major Chinese company frauds in the U.S. stock markets.  As Howard Schilit, a forensic accountant and financial analyst, has observed:  I read recently that the one lesson we have learned from history is that we have learned nothing from history.  Yet my mantra remains that in order to find fraud, we must study the history of fraud.  A common element in major frauds is that their warning signs were not hard to find; in fact, they were hard to miss.  Six well known ratios and models for fraud prediction are advocated for use by financial analysts, forensic accountants, auditors, and risk managers. They are applied to five Chinese IPO and RTO companies that were frequently cited by short sellers.  As updated, these five companies represented approximately 10% ($4.1 billion) of the $40 billion market capitalization destruction by Chinese small-cap companies that had listed on U.S. stock exchanges from 2007-2011.  
 
Keywords: Fraud Models; Ratios; Forensic Analysis; Chinese; IPO; RTO.

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Zaiteku + Tobashi = Olympus Accounting Fraud | Full Article (PDF)
Michael C. Knapp
Carol A. Knapp
 
Abstract: Michael Woodford spent 30 years working his way up the employment hierarchy of Olympus Corporation, the Tokyo-based company best known for its digital cameras.  In early October 2011, Woodford finally made it to the ‘top’ when he was promoted to CEO of the company.  Woodford’s tenure as Olympus’ chief executive lasted all of two weeks.  On October 14, 2011, Woodford, the first foreign-born CEO of a Nikkei 225 company, was fired by a unanimous vote of Olympus’ board.  The motion to dismiss Woodford was made by none other than his longtime mentor, Tsuyoshi Kikukawa, the chairman of Olympus’ board of directors. 
 
Prior to being fired, Woodford and Kikukawa had been quarreling over a series of large and suspicious transactions that Woodford had discovered in Olympus’ accounting records.  Kikukawa effectively told Woodford that the given transactions were ‘old news’ and that Woodford should plan for the future of the company rather than digging into its past.  In fact, the transactions discovered by Woodford involved a decades-long accounting fraud that Kikukawa and other senior Olympus executives had concealed from the investing public. 
 
Within days of being dismissed, Woodford became a corporate whistleblower when he relayed his concerns regarding the suspicious transactions to the media and law enforcement authorities.  Less than one month later, Olympus called a news conference and disclosed the accounting fraud, which was one of the largest in Japanese history and easily the most publicized.  This instructional case documents the nature of the Olympus accounting fraud, the role that the company’s independent and statutory auditors played in that fraud, and examines alleged systemic weaknesses in Japan’s independent audit function.  
 
Keywords: Fraud; Auditor Independence; Corporate Governance; Auditor Changes; Related Parties.