Financial statement fraud, commonly referred to as "cooking the books," involves deliberately overstating assets, revenues, and profits and/or understating liabilities, expenses, and losses. When a forensic accountant investigates business financial fraud, she looks for red flags or accounting warning signs that indicate suspect business accounting practices.

Enacted in the wake of corporate mismanagement and accounting scandals, Sarbanes-Oxley (SOX) offers guidelines and spells out regulations that publicly traded companies must adhere to. Sarbanes-Oxley guidelines offer best-practice principles for any company, especially those providing services to other businesses bound by SOX.

Auditing is the process of investigating information that’s prepared by someone else — such as a company’s financial statements — to determine whether the information is fairly stated and free of material misstatement.Having a certified public accountant (CPA) perform an audit is a requirement of doing business for many companies because of regulatory- or compliance-related matters.

Every profession has its own lexicon. To communicate with your audit peers and supervisors, you must know key auditing phrases. Knowing these buzzwords is also helpful if you’re a business owner, because auditors sometimes forget to switch from audit-geek talk to regular language when speaking with you. Audit evidence: Facts gathered during the audit procedures that provide a reasonable basis for forming an opinion regarding the financial statements under audit.

You can choose your audit sample without using any type of specific statistical sampling method. The basic premise of statistical and nonstatistical sampling is the same. However, when performing an audit, be aware of these differences that do exist. They impact how you determine the sample size and select the items to sample.

Although you can never guarantee that an audit is 100-percent accurate, the sample of records you choose is crucial to helping you achieve as much accuracy as possible. The choices you make when determining which records to review can help you reduce (but never eliminate) your sampling risk. A number of factors contribute to risk: You’re looking at the records of a company you know only from the outside.

You have to judge a client’s accounting competence and integrity before accepting an auditing engagement. If the client lacks accounting skills and integrity, you should seriously consider not accepting the job. The process for sizing up a potential client can be involved. Just as you wouldn’t want to start a business with someone you don’t trust, you don’t want to accept an auditing engagement from a company whose management ethics seem a little shaky.

During an audit, you have to assess your client’s control risk. This audit procedure involves evaluating control risk, which means you need to find out as much as you can about your client’s internal control procedures. Auditing those procedures involves several steps: Consider external factors: Uncover as much as you can about environmental and external influences that may affect the company, such as the state of the economy, changes in technology, the potential effect of any laws and regulations, and changes in generally accepted accounting principles (GAAP) that relate to the client’s type of business.

In response to a loss of confidence among American investors reminiscent of the Great Depression, President George W. Bush signed the Sarbanes-Oxley Act into law on July 30, 2002. SOX, as the law was quickly dubbed, is intended to ensure the reliability of publicly reported financial information and bolster confidence in U.