CFFE Module I
Introduction to Forensic Accounting and Audit cheat sheet
Every chapter's key points, formulas and definitions on one page, for the last week before the exam. Each heading links to the chapter that explains it.
Introduction to accounting
- Accounting identifies, records, classifies, summarises and communicates financial information about an entity so that its users can make informed decisions.
- Internal users such as management and employees run and control the entity with it; external users such as investors, lenders, regulators and tax authorities rely on published accounts they cannot verify themselves.
- Assets = Liabilities + Equity underlies every transaction, and a fraudulent entry distorts one side of it without a genuine corresponding change.
- The accounting cycle runs from source documents to journals, ledgers, the trial balance and the financial statements.
- Management keeps the records, prepares the statements and is responsible for preventing and detecting fraud through its own controls; the external auditor only gives a reasonable, not absolute, assurance opinion on them.
Key terms
- Objective
- To provide reliable financial information that supports decision making and accountability.
- Internal users
- Management, employees, using accounting information to run and control the entity.
- External users
- Investors, lenders, regulators, tax authorities and the public, relying on published accounts they cannot independently verify themselves.
- Accrual basis
- Recognises transactions when they occur economically, regardless of when cash moves, the basis most commercial and IPSAS-compliant public entities use.
- Cash basis
- Recognises transactions only when cash is actually received or paid, simpler but can obscure obligations and receivables that accrual accounting would reveal.
- Going concern
- Assumes the entity will continue operating for the foreseeable future.
- Consistency
- The same accounting methods are applied period to period, so a sudden unexplained change can itself be a fraud indicator.
- Prudence
- Caution is exercised so assets and income are not overstated, nor liabilities and expenses understated.
- Management
- Responsible for maintaining accurate records and preparing financial statements.
- Those charged with governance (the board)
- Responsible for oversight of the financial reporting process.
- External auditors
- Responsible for independently opining on whether the statements are fairly presented, not for preparing them.
- Employees
- Responsible for accurate, honest recording of the transactions they handle.
The rest of the sheet covers
- The accounting environment and regulation
- Financial statements and financial statement fraud
- Basic financial statements
- Forensic accounting
- Forensic audit
- Exam technique and revision
- Glossary