ELK ASIA PACIFIC JOURNAL OF FINANCE AND RISK MANAGEMENT

ISSN 2349-2325 (Online); DOI: 10.16962/EAPJFRM/issn. 2349-2325/2015; Volume 8 Issue 1 (2017)

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FORENSIC ACCOUNTING IMPORTANCE AND CONCEPTS: EVALUATING ITS
SCOPE OF APPLICATION IN BANGLADESH

Dr. Asif Mahbub Karim

Associate Professor & Chairman
Department of Business Administration
Port City International University
asif.pciu@gmail.com

Md. Mamunur Rashid, ACMA Mollah Aminul Islam

Assistant Professor Assistant Professor
Department of Business Administration Department of Accounting & Information Systems
Stamford University Bangladesh Jatiya Kabi Kazi Nazrul Islam University

ABSTRACT
Forensic accounting is the application of accounting, auditing and investigative skills in detecting frauds committed
in the corporation. In the recent past, the recurrence of corporate scandals in spite of having external and internal
audit raise the scope of forensic accounting through the world. The corporate sectors in Bangladesh also faced
several incidents of embezzlement of funds and corruption in both public and private companies. This paper
examines the importance of the emergence of forensic accounting as well as the applicability of this technique in
detecting frauds committed in corporate sectors of Bangladesh. To this end, this article examines the perception of
accountants, internal auditors, and external auditors on causes, effects and techniques of forensic accounting. The
findings show diversified perceptions of the respondents in this respect.
Key words: Forensic accounting, white collar crime, forensic audit, litigation, forensic investigation, corporate
scandals.
and investigative skills to conduct an
INTRODUCTION
examination into a company's financial
The integration of accounting, auditing and
statements. Forensic accounting, sometimes
investigative skills yields the specialty
referred to as fraud examination accounting,
known as Forensic Accounting. Forensic
is an emerging area of specialization within
Accounting utilizes accounting, auditing,
the accounting discipline. Forensic
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ISSN 2349-2325 (Online); DOI: 10.16962/EAPJFRM/issn. 2349-2325/2015; Volume 8 Issue 1 (2017)

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accounting can, therefore, be defined as engagement where they anticipate that their
accounting that is used in a court of law, finding or analysis may be subject to
including, but not limited to, the application adversarial or judicial scrutiny or
of accounting theory, principles, and administrative review, the professional
calculations to actual or to hypothetical accountant seeks a level of evidentiary detail
issues in legal proceedings. The term is and analytical precision which will be
broad enough to include the many sustainable within the legal framework of
procedures that an accountant or auditor such scrutiny or review. This approach is
applies in a fraud investigation. (Arnoff and based on no more than the realistic
Jacobs, 2001) Job titles commonly used in appreciation that, while there is some
this field include forensic accountant, evolutionary dialogue, in the end, the courts
investigative accountant, fraud examiner, or appropriate administrative bodies are the
and fraud auditor. These terms are ultimate arbiters of what accounting facts
essentially interchangeable. Forensic are. (Crumbley, 2011)
accountants draw their expertise from many
Forensic accounting is one of the most
areas, including accounting, auditing, cost
interesting and fastest growing specialties in
accounting, taxation, and information
the profession. To help auditors in detecting
technology. Forensic accounting is more
fraud in a Financial Statement Audit,
than accounting—more than detective
accounting firms are scrambling to hire
work—it is a multifaceted activity that
people with knowledge and skills in the area
requires the use of knowledge from a
of fraud detection and prevention. Forensic
number of disciplines. (Albrecht, W.,
accountants can explain the financial
Albrecht, S., and Albrecht, C. C. 2006).
significance by reviewing documentation.
Since all professional accountants operate Some forensic accountants specialize in
within a commercial legal environment, all specific industries that are susceptible to
professional accountants are, in a sense, fraud, such as insurance or banking, and
forensic accountants. What distinguishes learn the business practices associated with
forensic accounting in common parlance, those fields. Forensic accountants may
however, are the engagements. That is, provide litigation support in some cases. A
when a professional accountant accepts an forensic accountant can tell the attorney
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what additional information may be needed
to prove the case and what questions to ask
of witnesses. The application of forensic
accounting is not very popular in the
corporate sector of Bangladesh. Also there is
no separate body for producing professional
forensic accountants. But the frequency of
corporate scandals in spite of having
external audit has created awareness among
the various stakeholders. This study has
been designed to judge the perceptions of
accountants, internal auditors and external
auditors regarding the various issues of
forensic accountants. These three groups
have been selected for studying their
perceptions because of their direct and
indirect knowledge and in some cases
involvement in the scandals.
OBJECTIVE OF THE STUDY
The major objective of the present study is
to evaluate the present status of the
application of forensic accounting in
Bangladesh. The specific objectives of the
study are:
 To overview the concept of forensic
accounting.
 To explain the perceptions of external
auditor, internal auditor and accountants
about the blessing and curse, the causes,
techniques and effects of forensic
accounting.
 To suggest some recommendations on
the basis of opinions of respondents.
IMPORTANCE OF FORENSIC
ACCOUNTING IN BANGLADESH
Bangladesh is a country which has a well
constituted Securities and Exchange
Commission (SEC) and well structured
stock exchanges. Despite all measures still
there are financial scams and financial losses
due to company’s practicing creative
accounting techniques and able to take
advantages of the loopholes of International
Accounting Standards (IAS’s) and Generally
Accepted Accounting Principles (GAAP’s).
So, its better if the Institute of Chartered
Accountants in Bangladesh has a forensic
cell and as external audit is mandatory to
make such forensic audit also mandatory for
the publically listed companies so that
financial scams may be minimized and have
a healthy financial and sound environment
of investment and accounting practices.
LITERATURE REVIEW
Historically, there has been confusion
between the accounting profession and the
public over who bears responsibility for
detecting fraudulent financial statements.
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For years, the accounting profession has
maintained that it is not responsible for
detecting fraud during the course of a
financial statement audit. However, the
courts increasingly have been holding
accounting firms responsible for failing to
detect financial statement fraud. Currently,
the Big Five accounting firms are facing an
unprecedented $30 billion in total legal
claims arising from audit and consulting
malpractice lawsuits (MacDonald, 1998).
Forensic accountants work in two primary
areas, investigative accounting and litigation
support. Investigative accounting
encompasses not just the numbers and
documents of a company, but the business
environment as well. (Moncliff, 2005)
There is a difference called ‘Perception Gap’
between the public and the auditing
profession concerning the duty of an auditor
regarding the fraud and errors detection.
Therefore the auditor duty can be seen as the
independent examination and expression of
opinion over the financial statements
produced by the entities. It must be done by
an appointed auditor in compliance with the
relevant statutory obligation (Millichamp
and Talor, 2008). The traditional role played
by the external auditors is that they will just
certify whether or not the financial
statements of the concerned clients show a
true and fair view of the state of affairs of
the organization. But they are not liable to
detect fraud if they work with proper
diligence and good faith. This means that
external auditors are basically working with
numbers. They will not go beyond the
number. In such a situation, forensic
accountants do not merely look at the
numbers but rather looks behind the
numbers. Forensic accounting may be one of
the most effective and efficient way to
reduce and prevent accounting fraud. (Koh ,
Arokiasamy & Suat 2009)
Forensic professional accountants while
conducting their examinations must look for
signs of fraud whereas all other accountants
(financial accountant, cost and management
accountant, and even chartered accountant)
in this arena do not do so. In doing so,
forensic accountants may examine internal
databases and court records. Because people
committing fraud have hidden the evidence
of their crimes, forensic accountants must
look beyond the numbers and anticipate
criminal actions. (Bobby Waldrup, Kim
Capriotti and Seth C. Anderson, 2009) The
majority of the lawsuits brought against
accounting firms involved either bankrupt or
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financially distressed. (Buckhoff and engagement enables the forensic accountant
Schrader, 2001) to offer suggestions as to internal controls
that owners could implement to reduce the
Many different organizations consult
likelihood of fraud. (Owojori & Asaolu
forensic accountants. Corporations hire
2009)
forensic accountants to investigate
allegations of fraud on the part of their "While Forensic Accountants ("FAs")
employees, suppliers, or customers. usually do not provide opinions, the work
Attorneys consult forensic accountants to performed and reports issued will often
obtain estimates of losses, damages, and provide answers to the how, where, what,
assets related to specific legal cases in many why and who. The FAs have and are
areas of the law, including Product Liability, continuing to evolve in terms of utilizing
shareholder disputes, and breaches of technology to assist in engagements to
contract. In criminal investigations, forensic identify anomalies and inconsistencies. It is
accountants analyze complex financial important to remember that it is not the
transactions such as those in Stock Market Forensic Accountants that determine fraud,
manipulations and price fixing schemes. but instead the court." (David Malamed,
They also help governments achieve 2011)
compliance with various forms of
Forensic accounting, forensic accountancy
regulation. (Jack, and Lindquist, 1985)
or financial forensics is the specialty
The occupational fraud committed by
practice area of accountancy that describes
employees usually involves the theft of
engagements that result from actual or
assets and
anticipated disputes or litigation. "Forensic"
embezzlement and the involvement of
means "suitable for use in a court of law",
employees in kickback schemes or
and it is to that standard and potential
conversion of corporate assets for personnel
outcome that forensic accountants generally
use, the forensic accountant on intervene
have to work. Forensic accountants, also
and observe the suspected examination of
referred to as forensic auditors or
assets, invigilation, inspection or documents
investigative auditors, often have to give
and interview of those involved to control
expert evidence at the eventual trial.
such practices experience and these types of
(Crumbley, Heitger and Smith 2005)
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Several instances of corporate scandals and
failure in resent past have put the
professional accounting bodies into a new
perception that goes beyond statutory audit
and in some ways even the trend of
corporate governance. Owojori, A.A and T.
O. Asaolu (2009).
Litigation support work within the area of
forensic accounting is challenging in many
aspects, and is an interesting alternative to
the other more visible areas of the
accounting profession such as auditing, tax,
and management accounting. In addition to
analyzing the financial considerations of a
lawsuit, preparing a damages report, and
testifying as an expert witness, another
service the forensic accountant can provide
is an important area as well: helping to
prepare deposition questions for posing to
the other side’s expert. (Fenton and Isaacs,
2012).
Forensic accounting has come into limelight
due to rapid increase in financial frauds and
white-collar crimes. The opportunities for
the forensic accountants are growing fast;
they are being engaged in public practice
and are being employed by insurance
companies, banks, police forces,
government agencies, etc. (Bhasin, 2007)
Many wonder if, but not all agree that the
failure of Sonali Bank, Ruposhi Bangla
Branch to prevent the fraudulent
misappropriation of Tk.3, 607 crores by
Hallmark Group (Tk.2, 668 crores) and
others is the biggest scandal in the banking
industry. In recent times, several such frauds
-- (a) misappropriation of Tk.622 coroes by
one Nurunnabi in Chittagong in 2007
through a false local letter of credit, (b)
embezzlement of Tk.596 crores withdrawn
without cheque from Oriental Bank in 2006
(alleged Hawa Bhaban connection), and (c)
transfer of Tk.300 crores by forgery from
five banks by one Om Prokash in 2002 --
were not as heinous as bank defrauding.
Perhaps more damaging has been the
transfer in their personal accounts of more
than Tk.4, 500 crores by the powers that be
from the mother account of the infamous
Destiny Group before the eyes of the
banking authorities several months into the
first sighting of the alleged fraudulent and
illegal deposit taking from the members of
the public. (Mohammed Farashuddin, Daily
Star, September 09, 2012).
Hoque, Begum and Ahmad conducted study
among110 respondents (70 university
teachers and 40 accountants and auditors)
about the awareness and attitude regarding
various issues of forensic accounting in
Bangladesh. The major findings revealed
that most of the respondents of both the
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ISSN 2349-2325 (Online); DOI: 10.16962/EAPJFRM/issn. 2349-2325/2015; Volume 8 Issue 1 (2017)
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groups have been fully aware and they have
high positive attitude towards various
aspects of forensic accounting. Their study
also revealed that the main causes of
introducing forensic accounting are
detection and prevention of frauds and errors
in accounts, investigation and prevention of
corruptions; the main modes and means of
committing corruptions as identified by the
respondents have been tax evasion and
avoidance, theft, forgery, manipulations of
accounts, misuse of powers,
misappropriations of public money and
properties, money laundering ; the positive
role of forensic accounting in mitigating
corruptions, but their levels of views have
been different, and forensic accounting and
forensic accounting education are highly
essential in the context of Bangladesh.
(http://wbiconpro.com/102-Jahirul.pdf)
The forensic accounting investigator's
concern is, at a much more granular level,
with the detailed development of factual
information—derived from both
documentary evidence and testimonial
evidence—about the who, what, when,
where, how, and why of a suspected or
known impropriety. The forensic accounting
investigators can be compared to the
detectives called in to investigate a crime.
(Gerson, Brolly and Skalak, 2015).
Imran, Rahman and Hossan, 2011 conducted
a study among professional accountant,
MNCs and Local organization in regard to
the various aspects of forensic accounting.
The study revealed that professional
accountants and MNCs have a clear idea
about the causes, techniques and other
aspects of forensic accounting whereas local
organizations do not have clear idea about
the issue.
METHODOLOGY
The study presented in this paper is an
exploratory one, based on both primary and
secondary sources of information. The
secondary sources include published books,
journals, periodicals, reports and newspaper.
The study’s population was limited to: (1)
50 internal auditor (2) 50 external auditors
and (3) 50 accountants. For the purpose of
analysis, the collected data have been
tabulated in five tables using mean.
ANALYSIS AND FINDINGS
To achieve the objective of the study, the
authors sent a well structured questionnaire
to accountants and internal auditors of
various sectors of public limited companies,
and external auditors (Chartered Accountant
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Firms based in Dhaka, Bangladesh). The
perceptions of the respondents are analyzed
below using a number of tables. The first
question asked was how long the
respondents practiced forensic accounting.
Approximately 70% of the respondents
replied that they practiced this technique
since the emergence of financial reporting,
while 15% are not familiar with the practice.
(Appendix-1) Whether forensic accounting
is a blessing or curse, 62% considered it as a
blessing and 12% as curse. External auditor
ranked first in this regard. (Appendix-2)
(Refer Table 1) If we conclude the findings
of Table 1, the perception of accountants,
internal and external auditors about why
forensic accounting is considered as
blessings it can be seen that the accountants
response as the highest mean with 4.78 on
the question that is there a scope of such
investigation while here external auditor
ranked highest with 4.9 and the internal
auditor ranked last. While the same ranking
is seen on the question that to stay at par
with the industry best performer. However ,
to attract more stakeholders here internal
auditors is seen to be the highest mean with
4.56 while external auditor was placed
second here with 4.44 and accountants
placed third with mean of 4.36. More or less
all the category of respondents were quiet
similar in their responses to this particular
question. While in response to the last
question in this category it was seen that to
maintain the trust and reliability of the
subsidiary’s as a parent company
accountants ranked first here with mean of
4.26 while internal auditors placed here
second and finally external auditors was
placed here third with mean of 3.9.
Overall we can see that the grand mean in
table 1, the external auditor with mean of
4.465 and the accountants with grand mean
of 4.435 and finally internal auditors with
grand mean of 4.325. (Refer Table2)
In analyzing some of the key components of
table 2 we can see that the responses of
causes of forensic accounting, where to
investigate a fraudulent practice external
auditors ranked highest here with a mean of
4.8 followed by accountants on 4.72 and
finally internal auditors on 4.64. In response
to establishing the idea that such practice
exist almost similar responses were
observed between the three categories with
4.7 mean of the internal auditors response
followed by 4.54 of the accountants and
finally 4.52 for the internal auditors. The
most deviation in responses was seen for the
fourth question on making more awareness
for the management , it is seen here the
external auditors responses ranked first here
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with mean of 4.76 while accountants
responses means stood at 4.28 while the
internal auditors marginally below it with
mean of 4.14.
Finally in response to the boosting of share
price in the stock market however reflected
a mixed bag response. Here internal auditors
seems to be on the point and with highest
mean of 3.92 while amongst external auditor
it is seen only 2.44 mean , while the
accountants reeponse was a moderate 3.0.
Overall we can see that the grand mean in
table 2, the internal auditor with mean of
4.0600 and the accountants with grand mean
of 4.3142 and finally external auditors with
grand mean of 4.1185. (Refer Table 3)
In analyzing some of the key component
from table 3 we can see that the responses of
techniques of forensic accounting, where to
investigate books on a regular interval
accountants ranked highest here with a mean
of 4.68, followed by internal auditors 4.52
and finally accountants on 4.24. In response
to allowing independent professionals for
surprise checks of records responses were
observed between the three categories with
4.36 mean of the accountants, followed by
4.26 of the internal auditors and finally 4.00
for the external auditors.
Overall we can see that the grand mean in
table 3, the internal auditor with mean of
4.3400 and the accountants with grand mean
of 4.1866 and finally external auditors with
grand mean of 4.1533. (Refer Table 4)
In analyzing some of the key component
from table 4 we can see that the responses
on effects of forensic accounting, to
establish an idea that such practice exists
external auditors ranked highest here with a
mean of 4.60 , followed by internal auditors
4.46 and finally accountants on 4.08. In
response to boost the share price in the stock
exchange a mixed responses were observed
between the three categories with 3.46 mean
of the accountants ,followed by only 2.92 of
the internal auditors and finally 2.50 for the
external auditors.
Overall we can see that the grand mean in
table 4, the external auditor with mean of
4.1600 and the accountants with grand mean
of 4.0057 and finally internal auditors with
grand mean of 4.0400.
CONCLUSION
Forensic account is still in its very early
stage in Bangladesh, still with no
professional bodies yet to practice it. Still to
date the members of the Institute of
Chartered Accountants of Bangladesh
(ICAB), are practicing the issues as per
terms of reference in the engagement letter.
Bangladesh do have long way to go as far as
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LIST OF APPENDIX:

Appendix - 1

Practice of Cosmetic Accountant Internal Auditor External Auditor Total

accounting
Emergence 32 30 42 104(69.33%)
3 decades 5 4 1 10(6.67%)
2 decades 3 3 2 8(5.33%)
1 decade 0 1 5 6(4.00%)
New concept 10 12 0 22(14.67%)
Total 50(33.33%) 50(33.33%) 50(33.33%) 150(100%)

Appendix - 2

Forensic accounting: Accountant Internal Auditor External Auditor Total

Blessing or Curse
Blessing 24 30 39 93(62.00%)
Curse 5 6 7 18(12.00%)
Both 21 14 4 39(26.00%)
Total 50(33.33%) 50(33.33%) 50(33.33%) 150(100%)
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Appendix - 3

BAS/IAS Accountant Internal Auditor External Auditor Total

Strongly agree 6 7 4 17(11.33%)
Agree 24 21 9 54(36.00%)
Neutral 9 14 10 33(22.00)
Disagree 4 3 12 19(12.67%)
Strongly disagree 7 5 15 27(18.00%)
Total 50(33.33%) 50(33.33%) 50(33.33%) 150(100%)

Appendix - 4

Legitimate Accountant Internal Auditor External Auditor Total

Strongly agree 5 4 10 19(12.67%)
Agree 21 19 31 71(47.33%)
Neutral 15 16 5 36(24.00%)
Disagree 9 8 3 20(13.33%)
Strongly disagree 0 3 1 4(2.67%)
Total 50(33.33%) 50(33.33%) 50(33.33%) 150(100%)
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LIST OF THE TABLES:

Table 1: Perceptions of accountants, internal auditors, and external auditors about why
forensic accounting is considered as blessing

SL Blessings Accountants Internal External

No. Auditor Auditor
1 To know that there is a scope of such 4.7800 4.3200 4.9000
investigation
2 To stay at par with industry best performers 4.3600 4.2200 4.6200
3 To attract more stakeholders into business 4.3400 4.5600 4.4400
4 To maintain the trust and reliability of the 4.2600 4.2000 3.9000
subsidiary’s as a parent company
Grand Mean 4.4350 4.3250 4.4650

Table 2: Perceptions about the causes of using forensic accounting

SL Causes of Forensic accounting Accountants Internal External
No. Auditor Auditor
1 To investigate a fraudulent practice 4.7200 4.6400 4.8000
2 To establish an idea that such practice exists 4.5400 4.7000 4.5200
3 To make users of information more aware 4.5400 4.6200 4.7200
4 To make more aware the management 4.2800 4.1400 4.7600
5 To minimize the risks of fraudulent practices 3.8000 4.1200 4.1800
6 To reduce the perception of stakeholders that 3.5400 4.0600 3.9000
fraud practices will be reduced
7 To boost the share price in the Stock Market. 3.0000 3.9200 2.4400
Grand Mean 4.0600 4.3142 4.1885
 ELK ASIA PACIFIC JOURNAL OF FINANCE AND RISK MANAGEMENT

ISSN 2349-2325 (Online); DOI: 10.16962/EAPJFRM/issn. 2349-2325/2015; Volume 8 Issue 1 (2017)

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Table 3: Perceptions about the techniques of forensic accounting

SL Techniques of Forensic Accounting Accountants Internal External
No. Auditor Auditor
1 To investigate the books at a regular interval 4.6800 4.5200 4.2400
2 To comment and report to the management 4.4400 4.2000 4.5400
for any deviation
3 To do regular monitoring which prevents 4.5200 4.3600 4.3400
such practices
4 To initiate steps and measures that 4.4000 4.2800 3.9000
management have taken measures to prevent
it
5 To allow independent professionals for 4.3600 4.2600 4.0000
surprise check of books of records
6 To follow conservative practices and be 2.7200 4.4200 3.9000
consistent in practice
Grand Mean 4.1866 4.3400 4.1533

Table 4: Perceptions about the effects of forensic accounting

SL Effects of Forensic Accounting Accountants Internal External
No. Auditor Auditor
1 To investigate a fraudulent practice 4.7200 4.8400 4.8200
2 To establish an idea that such practice exists 4.0800 4.4600 4.6000
3 To make users of information more aware 4.4400 4.3000 4.7000
4 To make more aware the management 4.0000 4.0800 4.5000
5 To minimize the risks of fraudulent 3.9000 3.9200 4.3000
practices
6 To reduce the perception of stakeholders 3.4400 3.7600 3.7000
that fraud practices will be reduced
7 To boost the share price in the Stock 3.4600 2.9200 2.5000
Market.
Grand Mean 4.0057 4.0400 4.1600