Vijay S. Sampath

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.

Most of the time, forensic accounting is used when someone commits fraud. For this reason, forensic accountants are often referred to as fraud investigators or fraud examiners. Fraud takes many forms, but no matter how you look at it, fraud is theft; it is profiting by deceit or trickery and involves the theft of funds or information or the use of someone's assets without permission.

The Limited Liability Company or LLC is an alternative type of business entity. A Limited Liability Company or LLC is like a corporation regarding limited liability, and it’s like a partnership regarding the flexibility of dividing profit among the owners. An LLC can elect to be treated either as a partnership or as a corporation for federal income tax purposes.

Making profit generates cash flow — any business owner knows that. What may not be known, however, is that the actual increase in cash during a given period is invariably lower or higher than the profit number. Understanding how cash flow relates to profit is critical for business owners and accountants. The following points illustrate how cash flow relates to profit: The amounts of cash flows during the period rarely are equal to the revenue and expense numbers in the P&L (profit and loss) report for the period.

Transactions are day-to-day accounting events that happen within a company. For example, the company receives a bill from the telephone company and posts it to accounts payable — that's a transaction. When the company pays the bill, that's another transaction. The term classes of transactions refers to the fact that the company's various transactions are divided into categories in its financial statements; like transactions are grouped together.

The nature of audit evidence refers to the form of the evidence you're looking at during the audit. It should include all accounting documents and may include other available information, such as the minutes of the board of directors meetings. Accounting documents Accounting documents come in two forms: books and records.

To judge the reliability of a client's internal control procedures, you first have to be aware of the five components that make up internal controls. For each client, you need to understand each component in order to effectively plan your audit. Your understanding of these components lets you grasp the design of internal controls relevant to the preparation of financial statements.

To account for all expenses it incurs while making products for resale, a manufacturing company has a cost of goods manufactured account. The cost of goods manufactured includes three types of inventory: direct materials, work in process, and finished goods. Direct material inventory The direct material (also known as raw materials) inventory reflects all the materials the company uses to make a product.

The audit file comes in many shapes and forms, all of which you classify as either permanent or current. Knowing the difference between the two is important, because correct allocation of audit evidence to the permanent or current file allows all CPA firm users to know exactly where to go if they need to access a specific document.