CHAPTER ONE

INTRODUCTION

1.0 Introduction

This chapter covers a variety of topics including: Background of the study, Problem
statement, Significance of the research, Objectives of the study, Research questions,
Scope of the study, Definition of key terms, and Conceptual framework.

1.1 Background of the Study

Globally, there is high demand for providing clearer and better definition for quality
of monetary or financial report, and to provide ideal procedure for assessing or
evaluating quality of monetary or financial report is another universal demand
because high quality of monetary or financial report triggers significant benefits to
investors and business users. (Loveday, E. A., Chidi, L., & Ifeanyi, P. (2020).

In spite of the rapidly growing demand for forensic accounting globally, Accourding
to (Somoye and Osho, 2017), Forensic accounting is not a new field because
evidence showed that the profession has been in existence a long time ago when the
profession was not yet being called forensic accounting.

In Australia, growth in the forensic accounting industry has been in direct response
to public demand for expertise in a broad range of fraud, forensic and business
analytics areas in order to improve the corporate governance practices of Australian
organizations. During the 1990s, Australian forensic accounting firms expanded and
diversified into a number of different areas going well beyond just the examination
of financial documents and involvement in financial litigation disputes. “Big 4”
accounting firms such as PriceWaterhouseCoopers, KPMG, Deloitte and Ernst and
Young formed independent forensic accounting or forensic services units; a number
of mid-tier and „boutique‟ forensic accounting firms similarly expanded into
forensic investigative, analytical and advisory services. (Akkeren, J. Van, & Tarr, J.-
A. (2014).
China is in the term of economic transformation, and with the quick development of
the economy and the continual enhancement of the comprehensive national strength,
the accounting information is more and more important in the whole social and
economic activity, and the amount of the civil action induced by the accounting
information is increasing by the geometric series, which will all quicken the further
integration of the legal domain and the accounting domain, and generate a new
accounting domain, i.e. the forensic accounting. The forensic accounting is the new
accounting domain which was born in the west country of 1980s to adapt the
development of the market economy and the perfection of the legal system. It is
entrusted by the independent third party, and adopts certain procedures and methods
to survey, compute, and analyze the management and financial items, and the part of
economic loss, or the legal issues in the management in the conflict of economic
benefit by the professional knowledge, and forms the forensic accounting report, and
provides references for the court or the arbitration agency or the administration
authority, and reduce or confirm legal responsibilities, or offers management advices.
The forensic accounting is pushed by the development of the economic environment,
and generated when the occupation change and the specialty development encounter
bottleneck. (Hao, X. (2010).

In Egypt , forensic accounting is certainly not a new field. Research findings have
shown that the profession has been in existence a long-time ago though it was not
called forensic accounting during that time. In ancient Egypt, the officers in charge
of pharaoh's grains, gold and other assets were caned the 'eyes and ears' of the
pharaohs. These officers' job in pharaoh's kingdom was nothing but forensic
accounting. According to Crumbly (2001), another evidence of the existence of
forensic accounting can be traced back to the year 1817 in a court decision of Meyer
V. Sefton. The decision was inter alia, an inquiry to determine the value of a
bankrupt's estate. In the case, a witness who has examined the bankrupt estate
accounts and financial statements was asked to testify because from the nature of the
case, such an inquiry could not be made in court. Thereafter, a young Scottish
accountant issued a circular advertising his expertise in arbitration support, in 1824.
In the late 1800s and early 1900s articles began to appear discussing expert
witnessing, evidence arbitration and award. Hence, forensic accounting evolves
through expert witnessing. Although forensic accounting has been in existence, no
documentary evidence has been made until 1946 when Maurice E. Peloubet, a
partner in a New York accounting firm first published an article with the term
"forensic accounting". According to Peloubet (1946), during the war both the public
and industrial accountants have been and still engaged in the practice of forensic
accounting, which is the use of accounting for legal purposes. Forensic accounting
always involves an investigation, and the mission is to answer a question; was
employee or management fraud committed? What are the economic damages
resulting from a fire? How much was embezzled? What happened in a contract
dispute? This follows by testifying about the answers in the court of law. (Okoye, E,
2009)

In Somalia, although effective forensic accounting that produces reliable and

adequate financial reporting is a significant problem in Somalia, however, there are
no sufficient studies related to the problem under investigation. Therefore, this study
is aimed to determine the impact of forensic accounting in quality of financial reports
of private companies in Mogadishu, Somalia.

By The word ''Forensic'' relates to crime solving. It is the application of science to

decide questions arising from crime or litigation and thus introduced in the
accounting domain to serve as a more reliable and evidential means of enhancing
financial investigations and prevention or reduction of financial impropriety in all
forms Modugu and Anyaduba(2013). Forensic accounting relates to deterring,
detecting and investigating frauds in financial reporting (Kristic, 2009). Forensic
accounting is the application of financial skills and investigative mentality to
unsettled issues, conducted within the context of the rules of evidence (Arokiasamy
and Cristal, 2009).
While the Oxford Advanced Learners Lexicon characterizes the word 'forensic' as
having a place with, utilized in, or appropriate to a court of judicature or for open
exchange or discussion, [Howard, S. and Sheetz, M. 2006 ] contended that forensic
accounting is the procedure of deciphering, condensing and introducing complex
money related issues unmistakably, concisely and genuinely in a courtroom as a
specialist witness should the need 0emerge. Meanwhile, according to [ Rezaee, Z.,
Crumbley, D., and Elmore, R. 2004. ], from organisation, through government offices,
regulatory authorities, and the judicial system, evidence abound to the effect that a
high level of expertise is necessary to undertake the analysis of complicated financial
transactions and events. The consensus here, therefore, is that forensic accounting
has been tossed into the bleeding edge of the campaign against money related
trickery.

Joshi (2003) opined that forensic accounting as the application of specialized

knowledge and specified skill to stumble up on the evidence of economic
translations.

According to [IASB, 2008], forensic accounting is the coordination of bookkeeping,

evaluating and insightful aptitudes. Forensic accounting has likewise been
characterized as the assurance and foundation of truth in help of legitimate case just
as the utilization of legal systems to distinguish and research a wrongdoing and to
uncover the personality of hoodlums and guilty parties [Degboro,D. and
Olafinsola,J.2007].

Forensic accounting is perceived to have evolved in response to certain emerging

fraud related cases. The scandals that recently rocked the corporate world with
classical examples being the often cited Enron and WorldCom cases have also
brought the field of forensic accounting to the forefront. Forensic accounting is seen
as encapsulating all other investigation related areas in uncovering financial fraud.
The increasing sophistication of financial fraud requires that forensic accounting be
added to the tools necessary to bring about the successful investigation and
prosecution of those individuals involved in criminal activities. Forensic accounting
is the tripartite practice of utilizing accounting, auditing and investigative skills to
assist in legal matters. It is a specialized field of accounting that describes
engagements that result from actual or anticipated disputes or litigation. Forensic
accounting can, therefore, be seen as an aspect of accounting that is suitable for legal
review and offering the highest level of assurance (Apostolou, Hassell, and Webber,
2000).

Dhar and Sarkar (2010) defined forensic accounting as the employment of

accounting conceptions and techniques in addressing legal issues. where fraud is
established, it demands reporting and the report is considered as evidence in the law
court or in administrative proceedings. According to the Association of Certified
Fraud Examiners (ACFE) forensic accounting is the use of skills in potential, real
civil or criminal disputes, including generally accepted accounting and auditing
principles; establishing losses or profit, income, property or damage, estimations of
internal controls, frauds and others that involve inclusion of accounting skill into the
legal system.

The origin of forensic accounting is dated back to the old Egyptian clerks who took
account of Pharaoh's assets who are called "eyes and ears of Pharaoh.” In 1817,
forensic accounting was reviewed for the first time in court when a certain
accountant was needed to testify in bank scam hearing in Scotland. However,
Pouloubet in 1946 was the first to present report on the phrase “forensic accounting”
which was later introduced by western nations in the 1980s based on developments
in market economy and to support judicial system. It is a science which is different
from conventional accounting which results from getting accounting facts using
procedures and checking methods which dealt with legal issues and monetary
attributes (Keskin & Ozturk 2013).

The primary objective of financial reporting is to provide high-quality financial

reporting information concerning economic entities, primarily financial in nature,
useful for economic entities to achieve useful economic decision making (FASB,
1999; IASB, 2008). Providing qualitative financial reports is important because it
will positively influence capital providers and other stakeholders in making
investments, credit and similar resource allocation decision thereby enhancing
overall market efficiency(IASB, 2008). According to Warshavsky(2012), Financial
Reporting Quality relates to the ability of a company's reported performance to best
symbolize its true earnings. He further argues that analysts, investors and
management have deployed dozens of forensic indices that aid the forensic
accountant in assessing the probability of performance index manipulation by a
suspect company. Warshavsky(2012), observed that because the financial statement
are the responsibility of company's management, transactions can be structured to
best achieve a desired accounting result by reporting key financial transactions to the
company's advantage. He stresses that the quality of a company's earnings is one
facet of an investigation that is often overlooked in the financial forensic process.

Quality Financial Reporting According to IASB(2008) explicitly express the

desirability of constructing a comprehensive measurement tool to assess the quality
of financial reporting considering all dimensions of decision usefulness. Hence, this
measurement tool considers all the qualitative characteristics because these
characteristics determine the decision usefulness of financial reporting information.
Epistein and Jermakowicz(2010) while citing IASB(2008) stated that tfinancial
reporting qualities can be broadly divided into fundamental characteristics(relevance
and faithful representation) and the enhancing qualitative characteristics
(understandability, comparability, verifiability and timeliness).

1.2 Problem statement

The accounting profession has in the recent past been challenged with entrenching
quality in the financials reports which is perceived as the hallmark of the profession.
Recent developments tend to establish the contrary.). The case of Enron and
Worldcom as earlier cited also lay credence to this assertion and brought to the fore
the extent of damage that poor quality financial reports can do. This study therefore
seeks to establish the extent to which Forensic Accounting as an aspect of accounting
can help in achieving qualitative financial statements that could aid stakeholders in
making better investment decisions.

Many researchers have measured the quality of financial reporting indirectly by

focusing on attributes that are believed to influence quality of financial reports such
as earnings management, financial restatements and timeliness (Barth, Beaver and
Lang, 2008; Schipper and Vincent, 2003; Cohen, Krishnamorthy and Wright, 2004).
Despite, a considerable interest in the effectiveness of accounting standards on the
quality of financial reporting, empirical literature emerged that offers contradictory
findings about the questions to what extent accounting standards contribute to the
decision usefulness of financial reporting information (Beest,et al. 2009).
However, despite all the above efforts, the company still struggles with meeting
acceptable financial reporting quality, financial reports are not made timely,
accountability for the financial resources are still wanting, frauds and misuse of the
Company’s resources have been unearthed (Auditors Report,2011). If the Company
continues in this direction, decisions made may not be informed and this may lead to
declined performance.

While there are many factors that affect Financial Reporting Quality of companies,
Forensic Accounting may be playing a significant role. It is for this reason that the
researcher embarked on this study relating Financial Reporting Quality to Forensic
Accounting. There is a gap in the research field, despite the fact that many studies
related to this issue have been performed in many parts of the world. As a result, the
aim of this research is to fill in the gaps and assess the impact of forensic accounting
on financial reporting quality on somalia.

1.3 Significance of the study

The results of this study be beneficial for the following groups of people;
1. Management of private companies: The study may help management of
private companies in setting policies that are relevant to company’s
performance in improving their financial reporting.
 2. Academicians: The study may provide information and knowledge to
academic people and also will use this study as reference for future studies.
3. General readers: The study might also be beneficial for general readers of the
society.

1.4.1 General objective

The general objective of the study is to find out the imp act of forensic accounting in
quality financial reporting
1.4.2 Specific objectives
(i) To determine the effectiveness of fraud detection in quality of financial reporting
in private companies in Mogadishu
(ii) To evaluate the effect of fraud prevention in quality financial reporting in private
companies in Mogadishu
(iii) To ascertain the effectiveness of corporate fraud in quality financial reporting in
private companies in Mogadishu
Research questions
We would like to contribute to existing literature and get a deeper understanding the
impact of forensic accounting on quality of financial reporting by studying the
following research questions:
(i) How effective is fraud detection in quality financial reporting in private companies
in Mogadishu?
(ii) To what extent fraud prevention can effect in quality financial reporting in
private companies in Mogadishu?
(iii) To what extent does corporate fraud can effect in quality financial reporting in
private companies in Mogadishu?

1.6 Scope of the study

1.61 Content scope
This study will concentrate the impact of forensic accounting In quality financial
reprting.
1.62 Geographical scope
This study will be conducted in Mogadishu, Somalia.
1.63 Time scope
This study will be conducted between September 2021 to June2021.
1.7 Operational definitions

Forensic Accounting

Forensic accounting is the specialty area of the accountancy profession which

describes engagements that result from actual or anticipated disputes or litigation.
“Forensic” means “suitable for use in a court of law,” and it is to that standard and
potential outcome that forensic accountants generally have to work (Crumbley,
Heitger and Smith, 2005). Forensic accounting is recognized as a particular form of
professional expertise and endowed with specific attributes; the recognition comes
from possessing a formal certification in forensic accounting which provides
symbolic value (Williams, 2002).

Fraud detection

Accourding to (Bolton, R. J., & Hand, D. J. (2002). Fraud detection involves

identifying fraud as quickly as possible once it has been perpetrated. Fraud detection
comes into play once fraud prevention has failed. In practice, of course fraud
detection must be used continuously, as one will typically be unaware that fraud
prevention has failed. We can try to prevent credit card fraud by guarding our cards
assiduously, but if nevertheless the card’s details are stolen, then we need to be able
to detect, as soon as possible, that fraud is being perpetrated. Fraud detection is a
continuously evolving discipline. Whenever it becomes known that one detection
method is in place, criminals will adapt their strategies and try others. Of course, new
criminals are also constantly entering the field. Many of them will not be aware of
the fraud detection methods which have been successful in the past and will adopt
strategies which lead to identifiable frauds. This means that the earlier detection tools
need to be applied as well as the latest developments.
 Fraud Prevention

Fraud prevention strategy (fraud prevention) is a series of programs designed to

prevent or at least control this fraud. The strategy is done by control- ling the factors
driving the emergence of fraud through the creation of conditions that facilitate the
detection and avoidance toward the accommoda- tive and push the prevention of
fraud. BPK (2008: 37-38) states that the prevention fraud is integrated efforts to
suppress the occurrence of the causes of fraud (fraud triangle), that includes: 1.
Minimize the opportunity for cheating. 2. Reduce pressure on employees to be able
to meet their needs.3. Eliminate the reason for making a justification or
rationalization for acts of fraud committed. Picket (2010: 559) states that: “The risk
of fraud can be reduced through a combination of prevention, deterrence, and de-
tection measures. For that reason, organiza- tions need to adopt tough anti-fraud
policies, strong internal controls, accountability on the part of all managers, training
of employees in fraud awareness, liaison with law enforcement, and other. Palupi,
D., & Santoso, B. H. (2017)
 1.8 Conceptual framework

The conceptual framework illustrates the interaction between independent variables

and the dependent variable. In this study, the independent variables were forensic
accounting namely; fraud detection, fraud prevention and corporate fraud and
dependent variable was the quality financial reporting.

To visualize our expected cause-and-effect relationship, we will use the basic design
components of boxes and arrows. Each variable appears in a box. To indicate a
causal relationship, each arrow should start from the independent variable (the cause)
and point to the dependent variable (the effect). our-conceptual-framework-using-an-
independent-variable-and-a-dependent-variable Next, we should identify other
variables that might influence the relationship between our independent and
dependent variables.

1.8 Conceptual framework

Independent Variable Dependent

Variable

Forensic Accounting Quality Financial Reporting

 Comparability
 Fraud detection
 Timeliness
 Fraud prevention
 Understandability
 Corporate fraud
 Reliability
 CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter we will fully discuss the following points such: concepts and theories
about forensic accounting and quality financial reporting, concepts and theories
about fraud prevention and quality financial reporting, concepts and theories about
fraud detection and quality financial reporting, concepts and theories about corporate
fraud and quality financial reporting, Relationship between forensic accounting and
quality financial reporting, Empirical review and conclusion.

2.1 forensic accounting

According to Hopwood, Leiner, and Young as cited in Pedneault et al. (2012)

forensic accounting is the way of applying investigative and analytical skills for the
intention to unravel financial problems in a manner that abides by the standard
required by court regulations. Forensic accountants use uncommon competencies in
accounting, auditing, finance, certain areas of the law, research, and investigative
skills to collect, analyse and evaluate on the evidence at hand and to interpret and
communicate results to their clients.

According to the research carried out by Corporate Financial Institute (2019),

forensic accounting is the investigation of fraud or financial manipulation by
performing extremely detailed research and analysis of financial information.
Forensic accountants are often employed to prepare for litigation associated to
insurance claims, insolvency, divorces, embezzlement, fraud, skimming, and any
type of financial crime.

According to Kreuter (2017), accounting graduates have various paths to focus on in

forensic account- ing. They could work with non-profit organizations, private
company, university, hospital, or govern- ment. The knowledge of forensic
accounting is mostly helpful for those employed in the private sectors, due to the fact
that a forensic professional in the private sector gets higher value and reward. The
internal auditors and controllers should have forensic accounting knowledge as well.
A certified public account- ant who has forensic skills and working in a private
accounting position can expect higher rewards; there should be a developing need for
this skill across the field. Forensic accounting is not a complex concept; it is
basically litigation which supports accounting. It is straightforward and direct to
apply forensic accounting techniques. The lawful cases to answer questions
concerning damages, generally with an economic bearing, or where there is a
concern expressed by a company potentially experiencing fraud or suffering from
unprofessional internal control system then, forensic accounting skills are needed to
fix the problem.

Importance of forensic accounting

Forensic accounting is an exciting and profitable discipline that allows specialists to

use their accounting cognizance and investigative competencies to trap criminals,
reconcile lawsuits, and carry the hazard of large-scale fraud to barest minimal.
(Maryville University 2020)

Most financial crimes of nowadays need specialized consideration that, informed

attorneys were unable to find. In this situation it is the duty of forensic accounting to
give them helping hand by making difficult financial dispute easier for the attorney
and its clients to understand. The forensic accountant also assists in investigative role
in terms of civil cases by working with attorney general to locate undeclared income
and assets, in major criminal investigations, forensic accountant plays critical role in
tracing complex money trails. Forensic accountants can conduct thorough internal
audit investigation, through which potential financial crime are uncovered. After
knowing the fault areas, forensic accountant can support corporate and non-profit
clients take the necessary steps to curb the potential for fraud. (Maryville Uni-
versity 2019.)
History of forensic accounting

According to some, forensic accounting is one of the oldest professions and can be
traced back to the Egyptians. As at that time, the ‘‘watchdog’’ of the king was a
person who basically served as a forensic accountant for Pharaoh, this person watch
over inventories of gold, grain, and other assets. This king’s right hand had to be
trustworthy, responsible, and able to handle a position of influence. According to the
research carried out by Singleton & Singleton (2010), the first major corporate fraud
is the fraud known as the South Sea Bubble. The South Sea Company was
established in 1711 with exclusive trading rights to Spanish south America. The
company made its first trading voyage in 1717 and made little actual profit to offset
the £10 million of government bonds it had assumed. South Sea then had to borrow
£2 million more. Tension between England and Spain led to the arrest of South Sea
ships by Spain in 1718. (Singleton & Singleton 2010.)

In 1719, the company proposed a scheme by which it would take on the entire
remaining national debt in Britain, over £30 million, using its own stock at 5 percent
in exchange for government bonds lasting until 1727. Although the Bank of England
offered also to assume the debt, parliament approved the assumption of the debt by
the South Sea Company. Its stock rose from £128 in January 1720 to £550 by the end
of May that year, in a speculation frenzy. The company put the price of the stock up
through artificial means; largely taking the form of new subscriptions combined with
the circulation of pro trade with Spain stories designed to give the impression that the
stock could only go higher. Not only did capital stay in England, but many Dutch
investors bought south sea stock, thus increasing the inflationary pressure. Other
joint-stock companies then joined the market, usually making fraudulent claims
about foreign ventures, and were nicknamed ‘‘bubbles’’. (Singleton & Singleton
2010.)
In 1817, the Meyer v. Sefton case involved a bankrupt estate. Since the nature of the
evidence was such that it could not be examined in court, the judge allowed the
expert witness who had examined the bankrupt’s accounts to testify to his
examination. Forensic accounting professor and author Dr. Larry Crumbley
considers this accountant to be the first forensic accountant in records and the
beginning of forensic accounting as a profession. (Singleton & Singleton 2010.)

Moreover, banking sectors and all other large, medium and small-scale enterprises all
over the world now have forensic department or what some others refer to as, fraud
alert department, to enhance ade- quate and most reliable financial representation,
and efficiency, as the case may be.

Composition of forensic accounting

According to Zysman (2019), forensic accounting involves both investigative

accounting and litigation support. Litigation support helps in all nature in a matter
involving present or awaiting litigation. It also mainly deals with issues related to the
quantification of economic damages. On the other hand, Malcolm (2020) went
further to explain litigation support by saying, litigation support is the way of giving
con- sultation and support services to attorneys regarding present and awaiting cases.
This type of support services obtainable will depend on the requests of the attorneys
and may range from research and docu- mentation of proofs and instances before a
case comes to trial or to assist in the determination of damages once a case has been
tried. Consultants rendering this type of professional service may work alone or work
with several consultant firms providing litigating support services.

Forensic accountants assist on several issues under litigation support. They can help
in obtaining docu- mentation necessary for backing up a claim. They provide
assessment of the relevant documentation to form an initial charge of the case and
identify areas of loss. They also support in examining the formu- lation of questions
to be asked concerning the financial evidence. Furthermore, they assist with settle-
ment discussions and negotiations. (Malcolm 2020.)
Investigative Accounting according to Zysman (2019) is usually associated with
investigations of crim- inal issues. A good example of investigative accounting
assignment would be an investigation of worker theft. Other examples include
securities fraud, insurance fraud, and incomes of crime investigations.

Investigative accounting helps on the following issues. They help in the assessment
of the accurate sit- uation and provide suggestions concerning possible courses of
action. More so, they can help with the guard and retrieval of assets, co-ordination of
other professionals (including private investigators, foren- sic document examiners
and consulting engineers), and also help in the line of criminal prosecution. (Zysman
2019.)

Practitioners of forensic accounting profession

Forensic accounting is an offshoot of the general professional accounting and it is

affiliated to profes- sional accounting institutes. For the purpose of practice,
individual firms of general accounting consult- ants departmentalize and train experts
in investigative accounting within their general practice (Idowu2012). For example,
The Canadian Institute of Chartered Accountants (CICA) demonstrated the Alliance
for excellence in investigative and forensic accounting (IFA Alliance) in 1998 to
enforce a specialist certification program for chartered accountants practicing in
investigative and forensic accounting. The IFA Alliance carry out their operations
through a board of directors which is supported by several com- mittees, including
marketing and member services, education, certification, and standards. (CPA 2006.)

Forensic accountants are basically certified public accountants which focus on using
scientific method to detect fraud when the need for evidence arises. Forensic
accountants also do arrangement of analysis for their investigation in order to get the
fact which form an expert decision. There are about 380 and 500 forensic
accountants in the firm of Coopers and Lybrand and Price Water House respectively.
(Idowu 2012).
On the other hand, separate bodies are also emerging for forensic accountants and
firms of the same area of profession are being established, e.g. National Association
Of Forensic Accountants, Association Of Certified Fraud Examiners, Certified Fraud
Deterrence, Certified Forensic Financial Analyst, America College Of Forensic
Examiners, and Forensic Certified Public Accountant Society. Some specialist prac-
tice firms include Zysman Forensic Accounting Incorporated, Kessler.

The practice is just gaining popularity in Nigeria. As such, there can only be
instances of professional engaging in investigative activities and there are
knowledgeable and experienced persons in investiga- tive accounting. The kind of
organization, mentioned above which are common in Canada and the United States
of America, are said to be recently established.

According to Pedneault et al, (2012), the forensic accountant can work in the
insurance company, with government regulatory agencies like economic and
financial crime commission (EFCC) and Department of state service (DSS) in
Nigeria. Likewise, the forensic accountant can perform their duty in the banking
sector when the internal and external auditors have lost their confidence and
credibility. Also, they per- form their task in the court area by doing some scientific
investigation on cases that are extremely critical for the judge to decide on. Forensic
accountant could also perform their duty in small or large-scale business which is the
most popular place you can find the forensic accountant performing their duty
because that is the area where fraud takes place the most.

2.1.1 Determination the effectiveness of fraud detection in quality of financial

reporting in private companies in Mogadishu.

Defining fraud is as difficult as identifying it. No definite and invariable rule can be
laid down as a general proposition in defining fraud as it includes surprise, trick,
cunning and unfair ways by which another is cheated. Fraud is a legal term that
refers to the intentional misrepresentation of the truth in order to manipulate or
deceive a company or individual. Fraud is to create a misjudgement or maintain an
existing misjudgement to induce somebody to make a contract”.

It involves enriching oneself intentionally by reducing the value/worth of an asset in

secret. “When companies undergo severe financial problems and end up in
bankruptcy, fraud by senior management may be involved. David (2005), states that
fraud is not a possibility but a probability. He also explains that fraud can be better
prevented if decisions are made by a group and not an individual. However, this is
not the case if the group has the same interest in mind. Then fraud may not be
prevented. Conversely, the group is influence by the dominant decision maker who
ends up deciding everything. Russell (1978 cited in Bello, 2001) remarks that the
term fraud is generic and is used in various ways. Fraud assumes so many different
degrees and forms that courts are compelled to context themselves with only few
general rules for its discovery and defeat. It is better not to define the term lest men
should find ways of committing frauds which might evade such definitions. Okafor
(2004) also reported that fraud is a generic term and embraces all the multifarious
means which human ingenuity can devise, which are resorted to by one individual to
get advantage over another in false representation.

According to Anyanwu (1993), fraud is an act or course of deception, deliberately

practiced to gain unlawful or unfair advantage; such deception directed to the
detriment of another. Accounting fraud is an act of knowingly falsifying accounting
records, such as sales or cost records, in order to boost the net income or sales
figures; accounting fraud is illegal and subjects the company and the executives
involved to civil lawsuits (Arokiasamy and Cristal, 2009). Company officials may
resort to accounting fraud to reverse loss or to ensure that they meet earning
expectations from shareholders or the public.

According to Karwai, (2002); Ajie and Ezi, (2000); Anyanwu, (1993); Okafor,
(2004) and Adeniji, (2004) summarize the types of fraud on the basis of methods of
perpetration include the following but not exhaustive as the methods are devised day
in-day out to include: defalcation, suppression, outright theft and embezzlement,
tampering with reserves, insider abuses and forgeries, fraudulent substitutions,
unauthorized, unauthorized lending, lending to ghost borrowers, kite flying and cross
firing, unofficial borrowing, impersonation, teeming and lading, fake payment,
fraudulent use of the firms documents, fictitious accounts, false proceeds of
collection, manipulation of vouchers, dry posting, over invoicing, inflation of
statistical data, ledger accounts manipulation, fictitious contracts, duplication cheque
books, computer fraud, misuse of suspense accounts, false declaration of cash
shortages etc.

Bozkurt (2003) opined that there are two types of fraud committed in business:
Personal use of business resources and Drawing up financial statements of the
business falsely. Examples are: Embezzlement of the money during its collection but
before it is recorded in accounts, tampering the bank records and taking monetary
advantage, gaining advantage through forgery of documents, making payments
which should not be made or previously made, creating fictitious debts and having
payments done in favor of oneself, inventory and scrap theft, office supplies and
fixed asset theft, creating fictitious expenses and obtaining disbursements, creating
ghost employees and embezzling their wages/salaries, benefiting from overstated
personal expenditures and selling business assets under the market value.

According to (Ozkul and Pamukc, 2012), the following are the objective of financial
statement fraud: Increasing the market value of the business, making financial
statements consistent with budgets and obtaining unfair earnings by presenting
falsely the value of the business. When business frauds are analyzed, it is ascertained
that three components come together when committing the crime. These are pressure,
opportunity, and justification that constitute the fraud triangle. Components of the
fraud triangle are similar to the fuel, spark, and oxygen which together cause fire.
When the three come together, inevitably fire breaks out.

Pressure factors could be gathered into three groups: pressures with financial content,
pressures stemming from bad habits and pressures related with job. Opportunity
factors are the second component of the fraud triangle. They directly involve top
management and owners of the business in particular.

Providing the opportunity to commit fraud is one of the most important factors
arising from frauds. Since the business could greatly influence opportunity factor,
this point should receive particular attention for fraud prevention. The third
component of the fraud triangle is fraudster’s developing defence mechanisms in
order to justify his/her action.

Some efforts of the fraudsters to justify themselves and the excuse they made up are:
(a) I had borrowed the money, I would pay back, (b) This is in return for my efforts
for the business (c) Nobody has suffered as a result of this and (d) I have taken the
money for a good purpose. In order to overcome these justifying excuses, business
should explain ethic rules to employees, inform them that fraudsters would definitely
be penalized, establish moral code in the organization, and provide training on them.
Over time, the importance of initial detection of fraud has increased because the
number of fraudulent events has increased.

Detection of fraud begins with the notification of red flags which indicates that
something is wrong (Ozkul and Pamukc, 2012). This might come to light as a result
of trends in the number of employees, managers, and victims concerned about the
loss in business assets. There are two main ways to detect frauds: (a) Detection by
chance and (b) Conducting a proactive research and encouraging initial identification
of symptoms Many fraudulent acts have been detected in the past by chance.
Unfortunately, the incidence of fraud proceeds during detection and losses
consequently increase. In many cases, people who are exposed to fraud in the
organization do know that fraud was being committed, but could not bring it to light
either because they are not sure and unwilling to blame someone directly or are
unsure of how to go about reporting it and might also be afraid of being labelled as
whistleblower (Ozkul and Pamukc, 2012). Fraud is costly. According to the
Association of Certified Fraud Examinations (ACFE), an estimated $3.5 trillion
worldwide were lost due to fraudulent financial statements, asset misappropriation,
and corruption in 2011 (ACFE, 2012).

In an effort to restore public trust in the audit profession, accounting standard setters
have increased the steps auditors are expected to take in order to detect fraud. As a
result of the Enron and WorldCom debacles, auditors are currently required to adhere
to the requirements of Statement on Auditing Standards (SAS) No. 99. (cited in Chui
and Pike, 2013). Rezaee (2004) revealed that financial statement fraud has cost
market participation more than USD$500 billion during recent years, with serious
litigation consequences. It will also give a view towards companies who wish to
educate and increase awareness among of the public regarding the seriousness of the
fraud in Nigeria. This research will lead to the awareness and acceptance level of
forensic accounting.

Karwai (2002) reported that the identification of the causes of fraud is very difficult.
He stated that modern day organizations frauds usually involve a complex web of
conspiracy and deception that often mask the actual cause. Ajie and Ezi (2000) are of
the view that studies have shown that on the average out of every ten (10) staff
would look for ways to steal if given the opportunity and thus only could four (4)be
normally honest. The widespread frauds in modern organizations have made
traditional auditing and investigation inefficient and ineffective in the detection and
prevention of the various types of frauds confronting businesses world-wide.

Oyejide (2008) opine that fraud is a subject that has received a lot of attention both
globally and in Nigeria. This interest has been heightened by several high profile
cases involving several organizations. Issues relating to fraud have also been the
subject of rigorous theoretical and empirical analysis in the academic literature
(Appah ans Appiah, 2010).

In the words of Adesola (2008), the threat of fraud to the global economy is better
illustrated by the statistics released by Criminologists at a consultancy: over two
hundred thousand cases of online frauds were committed in the United Kingdom in
2006, doubled the amount of real world robberies. The study revealed that 75% of
card not present fraud was committed on-line in 2006. The global market is
concerned about fraud in high and low places. We are very familiar with Enron,
WorldCom etc. We are also experiencing more and more frauds committed in the
society. The primary responsibility of an auditor is to verify whether the financial
statements exhibit a true and fair view of state of affair of the business and their
secondary responsibility is the prevention and detection of errors and frauds.

The primary responsibility for the prevention and detection of fraud and error rests
with both those charged with governance and the management of an entity in spite of
the fact that financial statements are the representations of the management. Some
authors have acknowledged that there are limitations in the way individual auditors
make fraud judgments (Wilks and Zimbelman, 2004).

Furthermore, fraud, in whatever nature and guise, has to be detected first, since
detected is an important prerequisite of rooting out any sort of. On their own,
auditors are not necessarily the most suitable group to perform the task of fraud
detection. The company, by instituting appropriate fraud prevention measures within
its organisation, can detect and prevention non-management fraud (Hemraj, 2004). It
is the duty of the forensic accountant to detect fraud. An increasing number of
studies examine the factors that tempt firms to commit fraud, such as high-powered
executive incentives (Johnson, Ryan, and Tian, 2005; Bergstresser and Philippon,
2006; Efendi, Srivastava, and Swanson, 2006; Peng and Röell, 2006), and weak
board structure (Beasley, 1996; Agrawal and Chadha, 2005). However, firms with
the largest defence contracts have less negative abnormal returns than those with
smaller contracts. Dyck, Morse, and Zingales (2006a, 2006b) examine the role of
different monitoring devices in fraud detection and find that market-based
institutions play a more significant role than regulatory-based institutions.

2.1.2 Evaluation of the effect of fraud prevention in quality financial reporting

in private companies in Mogadishu.

Accourding to Sengur, E. D. (2012). The word fraud is a generic term used to

describe any deliberate act to deceive or mislead another person, causing harm or
injury. This intentional act can be differentiated and defined in many ways (Rezaee,
2002). Occupational fraud is defined as the use of one’s occupation for personal
enrichment through the deliberate misuse or misapplication of the employing
organization’s resources or assets (ACFE, 2010).

Association of Certified Fraud Examiners (ACFE) classifies corporate fraud into

three categories: fraudulent financial statements, misappropriation of assets and
corruption. Fraudulent financial statment involves intentional misstatements
including omissions of amounts or disclosures in financial statements to deceive
financial statement users. Misappropriation of assets involves the theft of an entity’s
assets and can be accomplished in various ways, including embezzling receipts,
stealing assets, or causing an entity to pay for goods or services that have not been
received. Misappropriation of assets may be accompanied by false or misleading
records or documents, possibly created by circumventing controls (SAS 99 .06).
Corruption schemes involve the employee’s use of his or her influence in business
transactions in a way that violates his or her duty to the employer for the purpose of
obtaining a benefit for him or herself or someone else (ACFE, 2010) ,

Fraud prevention is all the measures that can be used to stop fraud from occuring.

According to 2010 Report to the Nations on Occupational Fraud and Abuse, a typical
organization annually loses 5% of its revenues to fraud. Fraud prevention impedes
fraud incidence and reduces loss of companies. In 2002, American Institute of
Certified Public Accountants (AICPA) has issued an Exhibit to SAS 99 entitled
“Management Anti-Fraud Programs and Controls, Guidance to Help Prevent, Deter,
and Detect Fraud” (SAS 99 .86). It was issued jointly by the American Institute of
Certified Public Accountants (AICPA), Association of Certified Fraud Examiners
(ACFE), Financial Executives International, Information Systems Audit and Control
Association,

The Institute of Internal Auditors (IIA), Institute of Management Accountants,

Society for Human Resource Management. The exhibit points out that entities can
take three actions to mitigate fraud: create a culture of honesty and high ethics,
evaluate antifraud processes and controls, and develope an appropriate oversight
process. Those programs and controls ensure entitiy to reduce or eliminate the risk of
fraudulent financial statement, misappropriation of assets and corruption. This study
has been undertaken to identify the external and internal auditors’ opinion regarding
the fraud prevention measures. In particular, the research focuses on understanding
the auditors’ opinion regarding the effectiveness of fraud prevention measures for
each of the three categories of fraud: fraudulent financial statement, misappropriation
of assets and corruption. Furthermore, the study examines the differences in
perception of effectiveness of fraud prevention measures among fraudulent financial
statement, misappropriation of assets and corruption.
Fraud Prevention Measures In this study, fraud prevention measures are
subcategorized in compliance with SAS 99

Exhibit “Management Anti-Fraud Programs and Controls, Guidance to Help Prevent,

Deter, and Detect Fraud”. In total 14 fraud prevention measures have identified for 3
main fraud prevention measures. Those measures are described as followed:

Creating a culture of honesty and high ethics - Setting the tone at the top: Tone at the
top refers to the ethical atmosphere that is created in the workplace by the
organization's leadership. If the tone set by managers upholds ethics and integrity,
employees will be more inclined to uphold those same values. However, if upper
management appears unconcerned with ethics and focuses solely on the bottom line,
employees will be more prone to commit fraud because they feel that ethical conduct
is not a focus or priority within the organization (ACFE).

-Establishing corporate code of conduct: A code of conduct is a policy or procedure

that is specifically targeted to reduce unethical behavior (Schnatterly, 2003).
Companies should create and distribute a code of conduct to all employees.
However, merely having a code of conduct is not sufficient. It must be
communicated frequently (Albrecht et al., 2009).

-Taking consistent actions in response to an alleged fraud: A person may be more

likely to behave unethically if the perceived consequences will not be punished
(Carpenter, 2005). Thus, fraudulent behavior should not be tolerated, on the contrary,
it should always be denigrated and condemned (Krummeck, 2000).

-Fraud training for employees and management: Employees should participate in

fraud awareness program that educates them about what is acceptable and
unacceptable, how all parties, including them, are hurt when someone is dishonest,
and what actions they should take if they see someone doing something improper
(Albrecht et. al., 2009). Fraud awareness training enhances the consciousness of
employees and helps to prevent fraud.

-Conducting background investigations on individuals being considered for

employment:
Companies should have effective policies that minimize the chance of hiring or
promoting individuals with low levels of honesty, especially for positions of trust
(Biegelman, 2006).

-Creating a positive workplace environment: A positive working environment can

promote ethical behavior among employees. When employees feel secure in their
jobs and valued as people, they are less likely to justify stealing from the company
(Coenen, 2008). Autocratic rather than participative management, perceived
inequities in the organization, unreasonable budget expectation, and low
organizational loyalty can be given as factors that detract from a positive work
environment (Biegelman, 2006).

Evaluating antifraud processes and controls -Identifying and measuring fraud risks:
Management has primary responsibility for establishing and monitoring all aspects of
the entity’s fraud risk assessment and prevention activities. The fraud risk assessment
process should consider the vulnerability of the entity to fraudulent activity and
whether any of those exposures could result in a material misstatement of the
financial statements or material loss to the organization (SAS 99 .86).

-Implementing and monitoring appropriate preventive and detective internal

controls: Once fraud risk assessment has taken place, the entity can identify the
processes, controls, and other procedures that are needed to mitigate the identified
risks (SAS 99 .86). Thus, it is crucial to obtain understanding the kinds of preventive
factors that are needed within the environment in which fraud occured (Albrecht et.
al., 2009).

-Making changes to the entity’s activities and processes in order to reduce or

eliminate fraud risk: It is possible to reduce or eliminate certain fraud risk by making
changes to the entity’s activities and processes (Biegelman, 2006). Having a good
system of controls means that there will be an explicit study of all frauds and why
they occured, together with implementation of control activities necessary to prevent
future occurences of the same types of frauds (Albrecht et. al., 2009).

Developing an appropriate oversight process -Effective audit committee: The audit

committee plays an important role in helping the board of directors fulfill its
oversight responsibilities with respect to the entity’s financial reporting process and
the system of internal control. In exercising this oversight responsibility, the audit
committee should evaluate management’s identification of fraud risks and
implementation of antifraud measures (SAS 99 .86). -Management effectiveness in
overseeing activities: Management has the responsibility to maintain controls that
provide reasonable assurance that adequate control exists over the entity’s assets and
controls (Messier F.W. et. al., 2008). The fair presentation of financial statements is
the responsibility of management, and, accordingly, management is responsible for
prevention and detection of fraud (Rezaee, 2002).

-External audit: Independent auditors can assist management and the board of
directors (or audit committee) by providing an assessment of the entity’s process for
identifying, assessing, and responding to the risks of fraud (SAS 99 .86). -Internal
audit: The internal audit’s objectives are to improve the effectiveness of risk
management, control and governance. Internal audit function raises fraud awareness
within an organization, including encouraging the audit committee and senior
management to set the proper tone at the top, create control consciousness and help
develop credible response to the potential risk of fraud (Reding et. al., 2007).

-Certified fraud examiners in internal audit team or in external audit team: Certified
fraudexaminers may assist the audit committee and board of directors with aspects of
the oversight process either directly or as part of a team of internal auditors or
independent auditors (SAS 99 .86).

Accourding to Hamdani, R., & Albar, A. R. (2016). Internal controls are mostly
conducted as one of the ways to prevent fraud. The controls are established to make
sure that the integrity among employees is well conducted (Bologna, 1993; (Haugen
and Selin 1999). Rahman and Anwar (2014) argue that banks do not have to depend
on one method to resolve fraud. The banks are supposed to establish checks and
balances to identify faults in the internal control system and to improve more
effective methods of preventing and detecting fraud. Explicitly, showing the process
of company’s risk identification and mitigation is a crucial element in achieving a
good work performance and the target profitability to prevent the loss of resources
(COSO 1992).
According to Hall (2011), fraud refers to the false representation of material facts
conducted by one party to another with a purpose of deceiving and influencing other
parties to lean on those facts which lead the related parties to loss. Concerning the
applied laws, a fraudulent act must acquire the following conditions: (1) False
representation; there must be false or unrevealed reports, (2) Material fact; the fact
must be a substantial factor supporting an individual to act, (3) Intent; there must be
intentions to perform fraud or understandings that the report is false, (4) Justifiable
reliance; the false representation must be a substantial factor causing other dependent
parties loss, and (5) Injury or loss; the fraud has caused injury or loss to the victims.

Fraud preventions are commonly believed as the activities conducted in establishing

policies, systems, and procedures which support the knowledge that needed actions
have been conducted by the company’s board of commissionaires, management, and
other personnel to provide adequate trust in the process of achieving its purposes.
The purposes include the operational efficiency and effectiveness, financial report
credibility, and the obligation towards the applied laws and regulations (COSO
1992).

According to Tuanakotta (2012), fraud preventions can be conducted by activating

the internal controls. An active internal control is the most common established
controls. It is similar to the wall in a house which prevents robbers, but it worth
concerning that even the strong wall can still be broken. Hence, fraud actors are still
able to perform the crime. COSO (2010) reports that regularly there is much loss on
public company’s assets and it is commonly on middling and lower companies in
which more than 26% asset becomes a loss. Black (2005) previously states that this
phenomenon is called control fraud. There are some types of control fraud:
accounting fraud, looting, and crass kleptomania.
2.1.3 Ascertaining the effectiveness of corporate fraud in quality
financial reporting in private companies in Mogadishu

Corporate fraud plans go past the extent of a representative's expressed position, and
are set apart by their unpredictability and monetary effect on the business, different
workers and outside gatherings (Investopedia" n.d.).

Corporate fraud is an unscrupulous exercises executed by an organization or workers

of an organization in a way to give leeway to the executing organization or
individual representatives of the organization.

The concern of corporate fraud has increased recently, in which billions of monies
have been wiped away and have led to grinding down of investors trust in financial
markets. In fact, fraudulent acts have a terrific loss on a firm’s value and the sectors
of a country. According to the Association of Certified Fraud Examiners, 2004
estimates, about six percent of firm’s revenue amounting $660 billion per year are
lost as a result of accounting fraud in the United States of America.

The Association of Certified Fraud Examiners in their 2008 report to the U.S nations
on fraud shown that U.S organizations alone lose 7 percent of their annual revenue to
fraud amounting to US$994 billion in losses.

Globally, there has been 140 percent increase in the number of companies reporting
financial misrepresentation, a 133 percent increase in the number reporting money
laundering, and 71 percent increase in the number reporting corruption and bribery
(Association of Certified Fraud Examiners, 2009). PricewaterhouseCoopers (2011)
in their survey revealed that the victims of economic fraud in Malaysia incurred
financial losses of between US$100,000 to US$5,000,000 during the particular year.
The organization also experienced great collateral damage including damage to
employee morale, brand, reputation, and business.

Corporate fraud can lead to a closure of an organization. Numerous losses that

corporate fraud has caused, in some cases, happened and were reported in Asia-
pacific, the Americans, Africa, Russia and Middle East as well as in Europe.
Corporate fraud has emerged and has become a cankerworm that has eaten deep into
Ghana economy, especially the financial sectors in which billions of Ghana cedi has
been lost to fraudsters. KPMG Africa Barometer (2014) in their survey revealed that
the value of all reported cases in Africa has increased from 10.8 billion dollars to 11
billion dollars. The fraudulent act knocked both public and private institutions
especially in the financial institutions perpetrated by employees in collaboration with
clients. The total monetary value involved in all reported fraud cases in corporate
financial institutions, both attempted for the fiscal year 2016-2017, amounted to
approximately GH$244.32m according to the Central Bank of Ghana. Basically,
fraud is a primary economic grievance for financial institutions and national
economies (Zunzunegui, Belanger et al., 2017).

Fraud and its management have been the main factor in the trouble of banks and, as
much as possible, different measures have been taken to limit the rate of
misrepresentation. Despite everything, it ascends constantly in light of the fact that
fraudsters dependably gadget key ways of submitting extortion.

According to the Association of Certified Fraud Examiners, most fraudulent acts are
perpetrated by employees in an organization. Despite the fact that this phenomenon
is not unique to the financial institutions industry or exceptional to Ghana alone, the
high occurrence of misrepresentation inside the banking industry has turned into an
issue to which preventions must must be given in perspective of the huge monies
included and its unfriendly ramifications on the economy.. The effects of fraud
reduced the assets of financial institutions and increase the liability of any company.
Nevertheless, researchers have worked little on the quantum of the effects of fraud
on the financial performance of financial institutions. Bonsu, O.-A. M., Dui, L. K.,
Muyun, Z., Asare, E. K., & Amankwaa, I. A. (2018).

2.2 Quality financial reporting

The quality of financial report is concerned with the ability of any firm's reported
performance to represent their true earnings or income. Investors, analysts, and
management deployed several forensic indices which help forensic auditors in
assessing and examining probability or chances of performance index being
mishandled or manipulated by any firm. Warshavsky (2012), observed that because
the monetary report or statement is the duty of firm's management to prepare,
transactions could be structured to achieve their intended accounting result by
presenting key monetary transactions to the advantage of the firms.

The IASB(2008) explicitly express the desirability of constructing a comprehensive

measurement tool to assess the quality of financial reporting considering all
dimensions of decision usefulness. Hence, this measurement tool considers all the
qualitative characteristics because these characteristics determine the decision
usefulness of financial reporting information. Epistein and Jermakowicz(2010) while
citing IASB(2008) stated that financial reporting qualities can be broadly divided
into fundamental characteristics(relevance and faithful representation) and the
enhancing qualitative characteristics (understandability, comparability, verifiability
and timeliness).

(1) Fundamental Qualitative Characteristics: These are the most important and
determine the content of financial reporting information, IASB (2008). They
comprise relevance and faithful representation.

(a) Relevance: Relevance refers to the capability of making a difference in the

decisions made by users in their capacity as capital providers. This concept will be
tested in order to improve the comprehensiveness of the quality assessing
measurement tool by considering a broader perspective on predictive value including
both financial and non-financial information. Predictive value is the ability of past
earnings to predict future earning (Francis, LaFond, Olsson and Schipper,2004;
Lipe,1990; Schipper and Vincent, 2003). Predictive value explains information on
the firm's ability to generate future cash flows.

(b) Faithful Representation: This shows or assesses financial reporting information

by measuring if information faithfully represents economic phenomena the
information purports to represent. Thus, annual reports must be complete, neutral and
free from material error(IASB, 2008). Faithful representation is measured using five
items namely: neutrality, completeness, freedom from material error and verifiability
( Willekens, 2008; Rezae,2003; Cohen, et al, 2004; Jonas and Blanchet, 2000;
Maines and Wahlen,2006; Gaeremynck and Willenkens; Kim,et.al, 2007, and Beest,
2009). The study therefore adopts some proxies such as free from bias; bias; valid
and well-grounded arguments; neutrality, unqualified report and corporate
governance statement.

(2) The Enhancing Qualitative Characteristics: The enhancing qualitative

characteristics can improve decision usefulness when the fundamental qualitative
characteristics are established. However, they cannot determine financial reporting
quality on their own, IASB (2008). These qualities are: understandability,
comparability and reliability.

1. Understandability: This attribute will increase when information is classified,

characterized and presented clearly and concisely (Beest et, al, 2009). Understability
is referred to when the quality of information enables users to comprehend their
meaning (IASB, 2008). The standard is measured using five items that emphasize the
transparency and clearness of the information presented in annual reports (Jonas and
Blanchet,2000; Courtis, 2005; IASB, 2006). Jonas and Blanket (2000) submitted that
if annual report is well-organised, it is easier to understand where to search for
specific information. Disclosure information and in particular the notes to the
balance sheet and income statement , may be valuable in terms of explaining and
providing more insight into earnings figure(Beretta and Bozzolan, 2004).

2. Comparability: This characteristic measures the quality of information that

enables users to identify similarities in and differences between two sets of economic
phenomena (IASB, 2008). This implies that similar situations should be presented
the same while different situations should be presented differently. To this extent
comparability is measured using six proxies that are focused on consistency.

3. Timeliness: This qualitative characteristic defined the ability of information being

made available to decision makers before it loses its capacity to influence decisions
(IASB, 2008) and refers to the time it takes to reveal the information and is related to
decision usefulness in general. The natural logarithm of number of days between
year end and that the signature on auditor's report after year end is the basis for
examining the quality of information in annual reports (Beest, et.al. 2009).
2.3 Relationship between forensic accounting and quality financial
reporting

Financial Reporting Quality relates to the ability of a company's reported

performance to best symbolize its true earnings. He further argues that analysts,
investors and management have deployed dozens of forensic indices that aid the
forensic accountant in assessing the probability of performance index manipulation
by a suspect company. Warshavsky(2012), observed that because the financial
statement are the responsibility of company's management, transactions can be
structured to best achieve a desired accounting result by reporting key financial
transactions to the company's advantage. He stresses that the quality of a company's
earnings is one facet of an investigation that is often overlooked in the financial
forensic process.

The place of Forensic Accounting in entrenchment of quality assurance of financial

statement cannot be overemphasized. The issue of quality is very critical to the
usefulness that financial reports could serve and Forensic Accounting which looks
beyond mere adherence of financial reports to policies and principles but goes further
to verify the underlying facts that could be tendered as evidence even in the courts
has been veritable in the strengthening of quality of reports being issued by
accountants.

The increasing spate of devolution of power from ownership to management has

increased in the last decade and has now more than ever triggered off the need for
quality assurance of financial statements. A qualitative financial statement should be
devoid of any misstatement or misrepresentations. Kristic(2009) advocates the need
for the broader accounting public and users of financial statements to base their
decisions on information that shows the real picture of financial and revenue position
of an enterprise. Fraudulent misrepresentation can range from overvaluation of
inventory and improper capitalisation of expenses to misstatement of earnings and
embezzelement (Harris & Brown 2000; Messmer,2004 in Digabriele, 2008).
If the forensic accountant must suceed in his assignment, he must have knowledge
and understanding of fraudulent financial transactions,legal processes, high acumen
of elements of fraud and criminology concepts and above all investigative skills
Singleton, et. al. (2000) in Njanike, Dube,Mashayanye(2009) .The forensic
accountant must be part corp, part lawyer, part accountant and partly a psychologist.
Honrenbeech(2002) in Njanike, et.al.(2009) acknowledge that a forensic auditor
should have a well developed professional skeptism(sniffer attitude and investigative
mind), analytical and logical mind, personal integrity, expertise in internal controls
and acumen in interviewing technique
 CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Overview

This chapter entails a detailed description of the methodology of the research.

Methodology included the description of the research design, research population,
sampling technique, instruments, data collection methods, data analysis as well as
ethical consideration and limitation of the study.

3.1 research design

A research design is the arrangement of conditions for the collection of data in a

manner that aims to combine relevance to the research purpose with economy and
procedure. Research design is the plan, structure and strategy and investigation
concaved so as to obtain ensured to search question and control variance. The study
was conducted through descriptive design. In this study, the primary canter of this
study was quantitative. In quantitative design, the researcher aims to determine the
problem numerically. It allows the researcher’s to collect quantitative data, which
can analyze, quantitatively using descriptive statistics. It is possible to generate
findings that are representative of the whole population at a lower cost than
collecting the data for the whole population using information gained from the
questionnaire. This design is selected for this study because it is effective, less cost
and easily accessible for collecting information from the target population.

3.2 Research population

Population refers to the whole group of people that the researchers wish to
investigate. Target population can be defined as a specified group of population,
which the researchers are interested to collect data or statistic from them. The target
population of this study consists of groups, which are known the conditions of this
study. The target population of the study was employees of Coca-Cola Company,
Hormuud, Premium Certified Accountants (PCA). The researchers selected these
respondents because they have important information and experience concerned this
study. The population was 40 individuals selected from target group.

3.2.2 Sample Size

In sample size, the researcher decides to use to sampling technique which means
researchers intentionally selects specific groups which the researchers pointed out in
advance. The searcher used sample of 36 respondents of population, it is to apply all
collected information based on the total population of this study, these sample
respondents employees, of Coca-Cola, Hormuud and Premium Certified
Accountant. Slovenes formula was used to check the sample of the data.

n= N/ {1+N (e^2)}. Where:

n= the required sample size

N= Total population

e= Margin of error.

Therefore n = 40/ (1+40(0.05)2) = 36.

Table 3.2.1 table of respondents

Categories Population Sample size

1 Coca-Cola company 15 13

2 Hormuud 10 9

3 Premium Certified Accountants 15 13

Total 40 36

The sample size was 36 .The Researchers distributed questionnaires according to

their experience and the information they have about the study .
3.3 Sampling Techniques

The sampling procedure of this study is non-probability sampling, particularly,

purposive sampling or judgmental sampling used to select the sample. The rationale
for choosing this approach is that respondents who are eligible to participate in this
study are purposively chosen as target respondents of the study.

3.4 Research instrument

This study used questionnaire and interview instrument as main instrument for
collection data, which used in quantitative research and questionnaire was adapted.
Questionnaire may be defined as technique of data collection in which each person is
asked to respond to the same set of questions in predetermine order. The researchers
used Questionnaires as a tool for data collection. The selection of this tool has been
guided by the nature of data to be collected, the time available as well as by the
objectives of the study. The overall aim of study is to collect a lot of reliable
information to obtain the exact situation of the forensic accountant in quality
financial reporting. The researchers preferred this method because it is the most
appropriate in collecting respondent’s view whose place was geographically spread.

3.5 Research Quality

3.5.1 Reliability

Reliability refers to the stability of the measure used to study the relationships
between variables.. According to Anastasia (1957), the reliability of test refers to the
consistency of scores obtained by the individual on different occasions or with
different sets of equivalent items. In other words, the instrument can be reliable only
if it produces or replicates the same results whenever it is repeatedly used to measure
a phenomena from the same respondents even by other researchers. Reliability was
observed using test-retest/ stability reliability. It is the extent to which scores on the
same test by the same individuals are consistent over time (Amin, 2005).
A pretest was done before the data collection in order to make sure the reliability of
the questionnaire. Five questionnaire were distributed to five people from the target
population and will be requested to answer them. Then after few day five
questionnaires of the same type were distributed to the same respondents and them
the two data were compared. If the two data are similar, then, the questionnaire is
reliable.

3.5.2 Validity

Validity of the study will assured through expert knowledge, and the researcher will
make sure at least the validity of data. However, validity means in research the
ability to produce findings that are in agreement with theoretical or conceptual
values: in other words, to produce accurate results and measure what is supposed to
be measured. Finally, a research instrument is said to be valid if it actually measures
what it is supposed to measure. The content validity index was employed to ensure of
the validity of the questionnaire.

3.6 Data Gathering Procedures

The researchers created questionnaires based on research objectives to collect

Primary data as the instrument of the research procedure which were distributed to
respondents. The secondary data were collected from various sources, which include
textbooks, journals, internet and paper and other documents in libraries. The data was
collected by hand and the researchers are responsible for the collected.

3.7 Data Analysis

Data was analyzed in quantitative because research instrument is questionnaire; by
using statistical package of social science (SPSS) to examine the impact of forensic
accounting in quality financial reporting as well as Descriptive statistics because
Descriptive Statistics focuses on summarizing and describing the characteristics of a
data set while no attempt is made to analyze and interpret the data. The methods of
descriptive statistics include graphic methods such as bar chart s, line graphs and pie
charts as well as numeric measures.
3.8 Ethical consideration

In this study the researchers gave strong consideration and tried to keep on the
ethical issues through the research project by keeping the privacy, confidentiality and
secrecy of the participant’s/ respondents. To maintain ethical issue the researcher
will request the organizations’ administrations to authorize the distribution of the
questionnaire to their employees and also will tell them that the information will use
only for academic purpose.

3.9 Limitations of the Study

The study has lots of limitations which encountered the researchers throughout their
project; these limitations include: Lack of enough time, Personally, the researcher’s
try to solicit information from specific departments within the selected companies,
but they were not permit to do so, some journals and magazines and books needed to
purchase for this this project, that was barrier to get access to the required
information. Some respondents may refuse answering the questionnaire

During the study, here are some of the challenges that the researchers may encounter:

1. Lack of enough time and fund to make the research study.

2. Some respondents may refuse answering the questionnaire.
3. Security problems
4. language barriers since some of the respondents may not know English
language and this needs to be translated in to their mother language
5. Financial problems
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND

DISCUSSION

OF FINDINGS

4.0 Introduction

This chapter covers the presentation, analysis and interpretation of findings (data) for
the impact of forensic accounting in quality financial reporting in private companies
in Mogadishu Somalia. The findings specifically address the research objectives
regarding the research objectives: to determine the effectiveness of fraud detection in
quality of financial reporting in private companies in Mogadishu., to evaluate of the
effect of fraud prevention in quality financial reporting in private companies in
Mogadishu, and to Ascertain the effectiveness of corporate fraud in quality financial
reporting in private companies in Mogadishu.

4.1 Demographic information

With the use of SPSS and excel, this theme presents data about the demographic
variables of the main population sample. In total, 36 respondents filled the
questionnaire from Premium Certified Accountant, Hormuud and Coca-Cola
Company in Mogadishu. This data specifically covers variables such as Age,
Gender, Educational level, and, Department as summarized in Tables 4.1.1- 4.1.4
4.1.1 Respondents Age

Were also asked to specify their Age. Their responses are summarized in Table
4.1.1.

Table 4.1. 1 Respondents’ Age

Age Frequency Percent

A. 25 or less 20 55.6

B. 25 – 35 12 33.3

C. 35 – 45 4 11.1

Total 36 100.0

Source: primary data, 2020

Table 4.1.1 shows ages of the respondents that 55.6% are in the ages between 25
or, 33.3% are between 25-35, and 11.1% are between 35-45. This means that the
majority of the respondents were in the ages between 25 or less. See also next figure
for further detail.

11%

A. 25 or less
33% 56% B. 25 – 35
C. 35 – 45

Figure 4.1. 1 Respondents’ Age

4.1.2 Respondents Gender
Respondents were also asked to specify their Gender. Their responses are
summarized in Table 4.1.2

Table 4.1. 2 : Respondents’ Gender

Gender Frequency Percent

A. Female 7 19.4

B. Male 29 80.6

Total 36 100.0

Source: primary data, 2020

Table 4.1.2 shows that 80.6% of the respondents were Male. In addition, 19.4%
were Female. See also next figure for further information.

Figure 4.1. 2 Respondents Gender

81%

19%

B. Male A. Female
4.1.3 Respondents Educational level
Respondents were asked to specify the years of their educational level respectively.
Their responses are summarized in Table 4. 1.3.

Table 4.1. 3. Level of education of respondents

Level of Education Frequency Percent

A. Certificate 1 2.8

B. Diploma 3 8.3

C. degree 23 63.9

D. Master and above 9 25.0

Total 36 100.0
Source: primary data, 2020

This table shows that 2.8% of the respondents were in Certificate level, 8.3% were
Diploma level, 63.9% were Bachelor degree and 25% were Master degree
respondents. This means that most of respondents were bachelor degree . See next
figure for further detail.

70%

60%

50%

40%
64% Total
30%

20%
25%
10% 8%
3%
0%
D. Master and above C. degree B. Diploma A. Certificate

Figure 4.1. 3 Respondents Educational level

4.1.4 Respondents Occupation
Respondents were asked to specify their Occupation. Their responses are
summarized in Table 4.1. 5

Frequency Percent

A. Admin& finance 14 38.9

B. Sales and marketing 10 27.8

C. Auditing 5 13.9

D. Production 2 5.6

E. Other 5 13.9

Total 36 100.0
Table 4.1. 4 Respondents Occupation.

Source primary data, 2020

This table shows that 38.9% of the respondent were admin& finance, 27.8% were
Sales and marketing. While 13.9% were auditors, 5.6% were production, and finally
13.9% were other for the rest of the respondents.

See also next figure for further detail.

Figure 4.1. 4 Respondents Occupation

50%
39%
40%
30% 28%
20% 14% 14%
10% 6%
0%

Table 4.1. 5 The organizations have Procedures for risk oversight and early
detection of fraud.
  Q1 Frequency Percent

Agree 12 33.3

disagree 4 11.1

Neutral 2 5.6
Strongly agree 15 41.7

Strongly disagree 3 8.3

Total 36 100.0
Source primary data, 2020

According to table 4.1.1.5 41.7% of respondents were strongly agree, 33.3%

were agree, 11.1% were disagree and finally 8.3% of the respondents were
strongly disagreed. see next figure for more information.

Figure 4.1.5. The organizations has Procedures for risk oversight and early
detection of fraud

8%

33% Agree
disagree
Neutral
Strongly agree
Strongly disagree
42%

11%

6%
Table 4.1. 6. Internal auditors play an important role in detecting fraud, so
frauds are usually detected from an audit process.

Q2 Frequency Percent

Agree 14 38.9

Neutral 5 13.9

Strongly Agree 14 38.9

Strongly Disagree 3 8.3

Total 36 100.0
Source: primary data,2020

According to table 4.1.6. 3 8 . 9 % of respondents were strongly agree, 38.9%

were agree, 13.9% were neutral and finally 8.3% of the respondents were strongly
disagreed. see next figure for more information.

Figure 4.1.6 . Internal auditors play an important role in detecting fraud, so

frauds are usually detected from an audit process.

45%

40% 39% 39%

35%

30%

25%

20%

15% 14%

10% 8%

5%

0%
Strongly Disagree Strongly Agree Neutral Agree
Table 4.1. 7. Making fraud detection needs to check fraud coming from cash
review, inventory observation, password protection, Surveillance equipment
and continuous auditing.

  Frequency Percent

Agree 16 44.4

Disagree 3 8.3

Neutral 2 5.6

Strongly agree 15 41.7

Total 36 100.0

Source: primary data, 2020

According to table 4.1.7. 4 1 . 7 % of respondents were strongly agree, 44.4%

were agree, 5.6% were neutral and finally 8.3% of the respondents were disagree.
see next figure for more information.

Agree
disagree
42% Neutral
44%
Strongly agree

8%
6%

Figure 4.1.7. Making fraud detection needs to check fraud coming from cash
review, inventory observation, password protection, Surveillance equipment
and continuous auditing.
Table 4.1. 8. The company needs to implement procedures that will proactively
prevent Fraud rather than just detecting fraud after it happens.

q4 Frequency Percent

Agree 16 44.4

Disagree 1 2.8

Neutral 4 11.1

Strongly Agree 11 30.6

Strongly Disagree 4 11.1

Total 36 100.0
Source: primary data, 2020

According to table 4.1.8. 3 0 . 6 % of respondents were strongly agree, 44.4%

were agree, 11.1% were neutral, 2.8 were disagree and finally 11.1% of the
respondents were strongly disagreed. see next figure for more information.

Figure 4.1. 8. The company needs to implement procedures that will proactively
prevent Fraud rather than just detecting fraud after it happens.

45%
40%
35%
30%
25% 44%
20%
15%
10% 31%
5%
11%
0% 3%
11%
Agree
Disagree
Neutral
Strongly Agree
Strongly Disagree
Table 4.1.9. All employees including top management are responsible to detect
fraud.

q5 Frequency Percent

Agree 8 22.2

Disagree 4 11.1

Neutral 4 11.1

Strongly agree 18 50.0

Strongly disagree 2 5.6

Total 36 100.0

Source: primary data, 2020

According to table 4.1.9. 5 0 % of respondents were strongly agree, 22.2% were

agree, 11.1% were neutral, 11.1 were disagree and finally 5.6% of the
respondents were strongly disagreed. see next figure for more information.
 50%
50%

45%

40%

35%

30%

25% 22%

20%

15% 11% 11%

10% 6%
5%

0%
Agree disagree Neutral Strongly agree Strongly disagree

Figure 4.1.9 All employees including top management are responsible to detect
fraud.
Table 4.1.10. The company has a policy on reporting fraud as well as
investigation policy.

q6 Frequency Percent

Agree 13 36.1

Disagree 4 11.1

Neutral 4 11.1

Strongly agree 10 27.8

Strongly disagree 5 13.9

Total 36 100.0

Source: primary data, 2020

According to table 4.1.10. 2 7 . 8 % of respondents were strongly agree, 36.11%

were agree, 11.1% were neutral, 11.1 were disagree and finally 13.9% of the
respondents were strongly disagreed. see next figure for more information.

14%

36%
Agree
Disagree
Neutral
28%
Strongly agree
Strongly disagree

11%
11%

Figure 4.1.10. The company needs to implement procedures that will proactively
prevent Fraud rather than just detecting fraud after it happens.
 Q7 Frequency Percent

Agree 13 36.1

Disagree 6 16.7

Neutral 6 16.7

Strongly agree 10 27.8

Strongly disagree 1 2.8

Total 36 100.0

Table 4.1.11. The company has computer security policy and training manual
specific to fraud.

Source: primary data, 2020

According to the table 4.1.11. 2 7 . 8 % of respondents were strongly agree,

36.11% were agree, 16.6% were neutral, 16.6% were disagree and finally 2.8%
of the respondents were strongly disagreed. see next figure for more information.

40%
36%
35%

30% 28%

25%

20%
17% 17%
15%

10%

5% 3%

0%
Agree Disagree Neutral Strongly agree Strongly disagree

Figure 4.1.11. The company has computer security policy and training manual
specific to fraud.
Table 4.1.12. It conducts pre-employment criminal background check.

 Q8 Frequency Percent

Agree 11 30.6

Disagree 3 8.3

Neutral 5 13.9

Strongly agree 12 33.3

Strongly disagree 5 13.9

Total 36 100.0

Source: primary data, 2020

According to the table 4.1.12. 3 3 . 3 % of respondents were strongly agree,

30.6% were agree, 13.9% were neutral, 8.3% were disagree and finally 13.9% of
the respondents were strongly disagreed. see next figure for more information.

35%

30%

25%

20%

33%
15% 31%

10%

14% 14%
5%
8%

0%
Agree disagree Neutral Strongly agree Strongly disagree

Figure 4.1.12. It Conducts pre-employment criminal background check.

Table 4.1.13. Have a hotline or toll-free number in place for reporting of fraud
cases.

Q9 Frequency Percent

Agree 12 33.3

Disagree 6 16.7

Neutral 8 22.2

Strongly agree 10 27.8

Total 36 100.0

Source: primary data, 2020

According to the table 4.1.13. 2 7 . 8 % of respondents were strongly agree,

33.3% were agree, 22.2% were neutral, and finally 16.7% of the respondents were
disagree. see next figure for more information.

Figure 4.1.13. Have a hotline or toll-free number in place for reporting of fraud
cases.

33%
35%
28%
30%
22%
25%

17%
20%

15%

10%

5%

0%
Agree disagree Neutral Strongly agree
  Q10 Frequency Percent

Agree 11 30.6

Disagree 1 2.8

Neutral 8 22.2
Strongly agree 14 38.9

Strongly disagree 1 5.6

Total 36 100.0

Table 4.1.14. The company Maintains Risk Identification & Assessment and
Creation of anti-fraud culture / behaviours;

Source: primary data, 2020

According to the table 4.1.14. 3 9 % of respondents were strongly agree, 31%

were agree, 22.2% were neutral, and finally 6% of the respondents were strongly
disagreed. see next figure for more information.

6%

31%

Agree
disagree
39% Neutral
Strongly agree
Strongly Disagree
3%

22%

Figure 4.1.14. The company Maintains Risk Identification & Assessment and
Creation of anti-fraud culture / behaviours;
Table 4.1.15. The creation of factious debt, inventory and scrap theft, office
supplies and fixed asset theft or creating fictitious expenses are avenue through
which fraud is perpetrated.

 Q11 Frequency Percent

Agree 13 36.1

Disagree 5 13.9

Neutral 6 16.7

Strongly agree 12 33.3

Total 36 100.0

Source: primary data, 2020

According to the table 4.1.15. 3 3 . 3 % of respondents were strongly agree, 36%

were agree, 17% were neutral, and finally 14% of the respondents were disagree.
see next figure for more information.

Figure 4.1.15.The creation of factious debt, inventory and scrap theft, office
supplies and fixed asset theft or creating fictitious expenses are avenue through
which fraud is perpetrated.
33% 36%
Agree
Disagree
Neutral
Strongly agree

17% 14%
Table 4.1.16. Your employees are your first line of defense. Train them to be
cautious and attentive.

q12 Frequency Percent

Agree 10 27.8

Disagree 2 5.6

Neutral 4 11.1

Strongly agree 15 41.7

Strongly disagree 5 13.9

Total 36 100.0
Source: primary data, 2020

According to the table 4.1.16. 4 2 % of respondents were strongly agree, 28%

were agree, 11% were neutral, 6% were disagree and finally 14% of the
respondents were strongly disagreed. see next figure for more information.

45%
42%
40%

35%

30% 28%

25%

20%

15% 14%
11%
10%
6%
5%

0%
Agree Disagree Neutral Strongly agree Strongly disagree

Figure 4.1.16. Your employees are your first line of defense. Train them to be
cautious and attentive.
Table 4.1.17. The Audit Committee is responsible for establishing and
maintaining a sound system of internal controls that supports the achievement
of organizational aims and objectives

 Q13 Frequency Percent

Agree 11 30.6

Disagree 4 11.1

Neutral 8 22.2

Strongly agree 10 27.8

Strongly disagree 3 8.3

Total 36 100.0

Source: primary data, 2020

According to the table 4.1.17. 2 8 % of respondents were strongly agree, 31%

were agree, 22% were neutral, 11% were disagree and finally 8% of the
respondents were strongly disagreed. See next figure for more information.
 35%
31%
30%
28%
25%
22%
20%

15%
11%
10%

5% 8%

0%
Agree
Disagree
Neutral
Strongly agree
Strongly disagree

Figure 4.1. 17. Your employees are your first line of defense. Train them to be
cautious and attentive
Table 4.1.18.Management establishes procedures to reduce the potential
occurrence of fraud through protective approval, segregation of duties and
periodic compliance reviews.

 Q14 Frequency Percent

Agree 10 27.8
Disagree 6 16.7

Neutral 7 19.4

Strongly agree 10 27.8

Strongly disagree 3 8.3

Total 36 100.0
Source: primary data, 2020

According to the table 4.1.18. 28% were agree, 19% were neutral, 17% were
disagree, 2 8 % of respondents were strongly agree and finally 8% of the
respondents were strongly disagreed. See next figure for more information.

8%

28%

Agree
28% Disagree
Neutral
Strongly agree
Strongly disagree

17%

19%

Figure 4.1.18. Management establishes procedures to reduce the potential

occurrence of fraud through protective approval, segregation of duties and
periodic compliance reviews.
  Q15 Frequency Percent

Agree 14 38.9
Disagree 4 11.1

Neutral 4 11.1

Strongly agree 13 36.1

Strongly disagree 1 2.8

Total 36 100.0

Table 4.1.19. Management advocates and develops a corporate culture of

honesty and integrity, establish controls and procedures designed to eliminate
the likelihood of fraud.

Source: primary data, 2020

According to the table 4.1.19. 39% were agree, 11% were neutral, 11% were
disagree, 3 6 % of respondents were strongly agree and finally 3% of the
respondents were strongly disagreed. See next figure for more information.

45%
40%
35%
30%
25%
20% 39%
36%
15%
10%
5% 11% 11%
3%
0%
Agree Disagree Neutral Strongly agree Strongly disagree

Figure 4.1.19. Management advocates and develops a corporate culture of

honesty and integrity, establish controls and procedures designed to eliminate
the likelihood of fraud.
 4.2 Discussion

THE MAJOR FINDIGS OF THE STUDY

There are several findings that have been established in this study about the impact
of forensic accounting in quality financial reporting in private companies in
Mogadishu somalia.

4.2.1 Determination the effectiveness of fraud detection in quality of financial

reporting in private companies in Mogadishu.
The organization has Procedures for risk oversight and early detection of fraud as
most of the respondents (42.0%). Internal auditors play an important role in
detecting fraud, so frauds are usually detected from an audit process as (38.9%) of
the respondents showed, accordingly Making fraud detection needs to check fraud
coming from cash review, inventory observation, password protection, Surveillance
equipment and continuous auditing as 62% agreed. The company needs to
implement procedures that will proactively prevent fraud rather than just detecting
fraud after it as majority of the respondents (45%) agreed and finally, all
employees including top management are responsible to detect fraud as 50% of the
respondents ageed.

4.2.2 Evaluation of the effect of fraud prevention in quality financial reporting

in private companies in Mogadishu.

The company has a policy on reporting fraud as well as investigation policy as 36%
majority of the respondents declared ; The company has computer security policy
and training manual specific to fraud s as also 40% of the respondents agreed ; It
Conducts pre-employment criminal background check as 33% of the respondents
declared ; The company Maintains Risk Identification & Assessment and Creation
of anti-fraud culture / behaviours;as 39% majority of the respondents declared..
4.2.3 Ascertaining the effectiveness of corporate fraud in quality
financial reporting in private companies in Mogadishu

The creation of factious debt, inventory and scrap theft, office supplies and fixed
asset theft or creating fictitious expenses are avenue through which fraud is
perpetrated as most of the respondents 36% approved ; Your employees are your
first line of defense. Train them to be cautious and attentive as most of the
respondents (28 %) agreed ; The Audit Committee is responsible for establishing
and maintaining a sound system of internal controls that supports the achievement of
organizational aims and objectives as approximated (31.0%) of the respondents
declared. Finally, Management advocates and develops a corporate culture of
honesty and integrity, establish controls and procedures designed to eliminate the
likelihood of fraud as 39% of the respondents agreed .
 CHAPTER FIVE

CONCULUTION AND RECOMMENDATION

5.0 Introduction:

This chapter contains two. Sections: First section is conclusion, and the
second section is makes recommendations for future researchers.

5.1 Conclusion

This study was examining about the impact of forensic accounting in quality
financial reporting in private companies in Mogadishu-Somalia

The study was conducted through a descriptive design; the objective of the study to
determine the effectiveness of fraud detection in quality financial reporting in private
companies in Mogadishu Somalia, t o evaluation of the effect of fraud prevention in
quality financial reporting in private companies in Mogadishu., and t o Ascertain
the effectiveness of corporate fraud in quality financial reporting in private
companies in Mogadishu.

According to objective one: The organization has Procedures for risk oversight
and early detection of fraud as most of the respondents declared, Internal auditors
play an important role in detecting fraud, so frauds are usually detected from an
audit process as majority of the respondents approved, also Making fraud
detection needs to check fraud coming from cash review, inventory observation,
password protection, Surveillance equipment and continuous auditing. The company
needs to implement procedures that will proactively prevent fraud rather than just
detecting fraud after it as most of the respondents of the research approved.

And the last not least, all employees including top management are responsible to
detect fraud as most of the respondents showed.
On the side of objective two: Evaluation the effect of fraud prevention in quality
financial reporting in private companies in Mogadishu, The company has a policy
on reporting fraud as well as investigation policy as majority of the respondents
declared ; The company has computer security policy and training manual specific to
frauds as also 40% of the respondents agreed ; It Conducts pre-employment criminal
background check as most of the respondents declared ; The company Maintains
Risk Identification & Assessment and Creation of anti-fraud culture / behaviours; as
majority of the respondents showed. And

Finally, in relation to Objective Three of the research: Ascertaining the

effectiveness of corporate fraud in quality financial reporting in private companies
in Mogadishu, Your employees are your first line of defense. Train them to be
cautious and attentive as most of the respondents agreed ; The Audit
Committee is responsible for establishing and maintaining a sound system of internal
controls that supports the achievement of organizational aims and objectives as
approximated most of the respondents declared. Finally, Management advocates and
develops a corporate culture of honesty and integrity, establish controls and
procedures designed to eliminate the likelihood of fraud as most of the respondents
agreed .

5.2 Recommendations

The study made the following recommendation which is believed by the

researchers that it will help improve forensic accounting in quality financial
reporting

Though the study of forensic accounting is fairly new and has not gained statutory
recognition in Somalia, yet the study advocates that forensic accounting has the
potentials that will positively impact on quality of financial reporting produced in
Somalia. Based on the finding of the study the researcher recommends:
(i) That accountants should acquire training in forensics to enable them carry out
this investigative aspect and be in a position to offer qualitative pieces of advise
that could unravel those issues which has mitigated quality of financial reporting.

(ii) Forensic accountants should be employed to fortify the internal control of

various organizations while reports are benchmarked against the fundamental and
enhancing qualitative attributes in order to appreciate organizations that have
adhered to therequirements.

(iii) Training and guidance is vital in maintaining the effectiveness of the strategy
for the detection and prevention of fraud and corruption and its general credibility.
The government needs to support induction and work related training, particularly
for employees involved in internal control system and the accounting sector, to
ensure their responsibilities and duties are regularly highlighted and reinforced and
that best practices is followed across organizations service. Significantly, Forensic
Accounting or any anti-fraud and corruption strategy can only work if heads of
departments and senior managers are committed to it..

(iv) Information Technology: private companies should take advantage of the

modern accounting and auditing software to enhance efficiency and smooth
operation of Forensic Accounting.

(v) The various universities and other tertiary institutions’ authorities should
formalize the study of forensic accounting by integrating it into their programme
of study in the various departments of Accountancy and other related disciplines.

The relevance of the role of forensic investigation professionals is growing

worldwide as crimes, fraud and corruption increase,