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.

The goal of a financial statement audit is for you (the auditor) to form an opinion regarding whether those statements are or aren’t free from error. To do so, you use your best professional judgment when assessing your client’s information and assertions. Although every company is different, and each audit you work on will vary, you can follow some common procedures.

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.

Audits provide the opportunity for a second set of eyes (usually those of a certified professional accountant) looking over your business’s accounts. An annual audit of your business may be a requirement of your business's investors and lenders as a condition of putting their money in the business. CPA auditors provide a couple of useful services for your business: Checking up: In a sense, CPA auditors give your business a yearly physical exam.

Your business's financial statement audit report can give your business a clean bill of health, or the auditor's report may state that your financial statements are misleading and should not be relied upon: The clean (unqualified) opinion: If the auditor finds no serious problems, the CPA firm gives your business’s financial statements an unqualified or clean opinion, which it expresses in a three-paragraph report.