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.

Three circumstances may preclude you from issuing an unqualified report when you complete your audit. For example, if your client limits what actions you can take and what records you can look at, and you can’t get enough competent evidence about one or more facets of its financial statements, you may deem that these particular areas aren’t fully audited.

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.

Fraud, embezzlement, and misappropriation can occur in every size of business. Such illegal accounting practices require manipulation of a business’s accounts. Keep your eyes open for these kinds of illegal accounting practices in your small business: Sales skimming: Not recording all sales revenue, to deflate the taxable income of the business and its owner.