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Dylan Gehr
Prof. Barclay
Research Project
Should the Accounting Education be Reformed?
Abstract
The auditing has been an important process since the industrial revolution, and while
auditing regulations and standards have only been in place for a relatively short amount of time
they have become increasingly inefficient. The Enron scandal in 2001 brought to light many of
these deficiencies in auditing and required the Securities and Exchange Commission (SEC) to
introduce regulations for both auditing firms and corporations to try and prevent billion dollar
cases. Since the 1990s, forensic accounting has proven to decrease auditing inefficiencies and
has been put into use by many government agencies to detect fraud and faulty accounts in
businesses. Ultimately, if more auditing firms used forensic accounting there would be less
judicial action needed in the financial industry.
Key Words: forensic accounting, auditing, fraud, financial corruption
Introduction
Securities and commodities fraud is on the rise. Since 2008, securities and commodities
fraud investigations have increased by 52 percent (Federal Bureau of Investigation 2011).
The SEC has begun investigating large corporations and businesses to discover that many of the
accounting standards and principles are not being followed. This has resulted in million dollar
settlements between these corporations and the SEC ultimately causing many of the businesses
to file for bankruptcy because of drops in company stocks and business malpractices. One of the
essential problems that have sparked the rise in financial fraud is the fact that the auditing
process has become ineffective at detecting errors in company income statements and accounts.
This has called the education of certified public accountants (CPAs) into question, and it is no

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longer clear if universities are providing students in the accounting discipline with enough
relevant and reliable resources to prepare them for the business world (Carnes and Gierlasinski
2001). Rather, new specializations in forensic accounting have provided insight into new
techniques on analyzing companys financial statements and investigative skills that have kept up
with the rapidly evolving technological expansion.
Forensic accounting is becoming a larger field of study for many
accounting professions because of the need for competent auditors to detect
fraud. Accounting curriculum should include forensic accounting courses
because there is an increased need for accountants who can detect fraud
and can successfully investigate the financial accounts and journals of
companies. In order to incorporate forensic accounting into the accounting
curriculum new regulations and standards would need to be devised in order
to make it mandatory to take these new courses. There is an increasing
importance because many companies in the past decades have been
discovered by the SEC to have committed fraud and tax evasion because
auditors have been unsuccessful at uncovering faulty accounts (Razaee and
Burton 1997). Forensic accounting has become an emergent area of study in universities
because certified public accountants have become increasing inefficient at auditing companies.
Therefore, fraud detection and illegal business practices have decreased with a new stress on
trained forensic accountants.
Problems with the auditing Process
The Security and Exchange Commission has been more focused on
catching Corporations using incorrect financial practices and in doing so has

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discovered that a large problem comes from poor fraud detection skills from
auditors. Misstated company finances and assets has been overlooked by
many auditors, but causes huge companies losses when the SEC requires
them to settle in court financially because of employee indiscretion. Many
companies have gone into bankruptcy or have suffered financially because of
drops in company stocks after being accused of fraud. This can be attributed
to the lack of forensic accounting courses offered by universities to prevent
companies from getting away with business fraud and overlooking business
regulations.

New

research

and

programs

are

conducted

to

provide

accountants with the skills they need to conduct quality audits and ensure
there are not any business malpractices and there are fewer lawsuits (Carnes
and Gierlasinski 2001).
The Enron Scandal was the largest auditing failure in U.S. history which
involved the energy company ENRON and Author Andersen, an accounting
firm, in which upper management in Enron hid millions of dollars in offshore
accounts for themselves and falsely reported money lost in failed projects.
Author Andersen provided much of the failure of both companies because
their financial consultants who were supposed to audit the company
overlooked the corruption within the accounts held by upper management.
This led to investors believing the company was worth much more than it
actually was and the original $2 to $3 stocks climbed to $90 a share when in
reality they were only worth around a $1 because of failed projects. Another
huge problem was that Enron would record assets that had not yet been

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earned in their revenues, so if the assets could not be collected by the
company because Enron failed to complete the project or Enron was not paid
for their work, their accounts would be overstated. This made Enron look
more productive and generated more investments in company stock. The
problem should have been corrected by Author Andersen auditors, but
because many of them profited with Enron they decided not to correct the
fraudulent accounts (Grey 2003).
The rapid advances in information technologies (IT) have created
inconsistencies in the auditing process over the past two decades.
Development of the forensic accounting discipline has helped to keep up
with these rapid advancements since the 1970s, when the first act of
financial fraud that used computers was uncovered. Pearson states that
through research it demonstrates that financial auditing is not sufficient to
detect any significant level of fraud and that forensic accountings
investigative skills has resulted in a much higher competency in accountants
uncovering faulty financial statements in companies. The growth and
accessibility of the internet and computers has allowed organizations to hide
crime with much more ease, and auditors are often not able to pick up on
these problems causing companies to get away with stealing money for long
periods of time before they are eventually caught when the SEC decides to
do a government audit. Auditors have also become lazy and have not kept
up with technology, where forensic accounting is a generally new concept
which has led to the settlement of many cases of fraud and promotes closer

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monitoring of business financials from within corporations own employees
(Pearson and Singleton 2008).
Some research groups have also looked at how many CPA firms use
forensic accounting services and techniques for fraud detection. It was
discovered through research of different large CPA firms that forensic
accounting was not being used as much as the companies wanted, raising
the question of whether these firms are auditing efficiently. Demand for
forensic services in the accounting community has been increasing, and the
need for auditing and forensic accounting to work together in order to
provide effective fraud investigation is essential, but data collected from a
survey proves that CPA firms have not increased the use of forensic
accountants despite large business fraud failures that have occurred. U.S.
corporations replied in a survey that 39 percent had considered using new
forensic accounting skills in their auditing process even though the data
collected has expressed that these large Corporations have not employed
the use of such skills. Watters research emphasizes that the adoption of
forensic accounting is important for these large businesses because of the
fraud and corruption committed by big corporations in the past has led to the
loss of billions of dollars (Watters, Casey, and Humphrey 2007).
How Forensic Accounting will help fix the Auditing Process
Accounting is a profession that assumes that businesses will operate with honesty and
integrity, but there are often people who abuse the system in order to get rich quickly and use
fraud to cover their trail. Forensic accounting was designed to reconstruct the finances of failed

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organizations to understand what went wrong after bankruptcy has been declared. New laws and
regulations have come about from the SEC and forensic accounting in order to provide
organizations with essential antifraud procedures, so businesses can operate without fear of
unknowingly committing a financial crime. Additionally, forensic accounting requires a less
optimistic view of businesses under investigation. All companies are assumed guilty of financial
fraud until proven not guilty and all the accounts add up correctly. This academic discipline
requires the accountants to provide courts with relevant information which can then be discussed,
and debated so that the court can provide a resolution (Fajardo 2014).
In court cases the attorneys often uses witnesses who are considered
experts in their field and forensic accounting careers have seen an increased
use in court cases in which financial fraud is suspected. These accountants
have specialized investigative skills which allow them to testify in court to
provide the judge and jurors with information on complicated and technical
material. The ability of forensic accountants to present courts with
specialized and reliable information has made it a lot easier on the judicial
systems of countries to uncover fraud committed by big companies and
corporations. Forensic accountant experts are required to understand what
data is more significant in different cases, and they have the ability to
provide data and facts in almost any type of investigative case. The use of
accountants in the judicial system greatly increases the importance of
competent accounting education and is more influential because they have
more expertise than an auditor (Heitger and Heitger 2008).

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While audits are completed every fiscal year to examine the financial
ledgers and accounts of a business, the auditors do not often pick up on
fraud occurring because they often know the companys personnel and
sometimes find it difficult to believe that people working for the company
could steal from the government. While there are only enough resources to
complete a forensic account report when the SEC decides to investigate a
company, it is far more likely that forensic accounting personnel will uncover
fraud in the company that is suspected of breaking the law. It is known that
fraud has been committed for thousands of years, but technology has often
made it harder to uncover. Investigations using forensic accounting have
more techniques and resources to expend in order to make sure that no
stone is left unturned. Lastly, financial firms auditing processes have become
outdated and fail to provide the necessary results to run an effective
economy (Imoniana, Antunes, and Formigoni 2013).
Doost explains how all states and universities need to adopt the new
regulation that accounting students need to take 150 credit hours before
they may sit for the CPA examination. The main argument is that most
students do not have the correct competency in the accounting profession
and require additional studies before being able to get their CPA and start
their careers. It has been discovered that in many cases the teachers for
these courses are not adequate to be educating the students or that they are
not specialized enough in the accounting profession. Many accounting
professors have their CPAs and have worked in the accounting field, once

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they begin teaching they are no longer involved in real world accounting
which will eventually cause students to fall behind because a professor is no
longer teaching essential information. Doost then sets various regulations as
to how accounting professors should fill certain requirements in order to
teach and provide students with the proper resources in order to pass the
CPA exam. The research gathered proved that of the 40 states that accepted the 150 credit hour
increase there was a significant increase in the proficiency of accounting students.
Communication between the professors and their students is an important part of the education
process, and there is a lot to be learned from the students and how they interpret the information
given to them by their teachers. The purpose of this article is to explain the importance of a good
accounting education and how it will only increase the knowledge of all the students who
participate in furthering their careers (Doost 1999).
This Journal examines how forensic accounting is accepted among accounting students,
and how well they are trained to interact with the economies of developed countries. The
research was acquired from accounting students taking a questionnaire that asked brief and
limited questions, but would require clear and accurate answers. This is different from traditional
research where generally only professors are used to gather data. While forensic
accounting is a relatively unknown area of study for most undergraduate
students, more universities are creating programs and helping students get
internships in order to create higher competency levels in undergraduate
accounting students. It was discovered that much of the adoption of this new
accounting discipline has been implemented in the U.S., and is used by much
of the government bureaucracy to try and prevent large companies from

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committing fraud and creating economic downturn or collapse. Although
there is increased demand in the U.S. accounting industry for curricular
changes which should incorporate interaction between academia and
practicing accountants in order to keep accounting up to date with
technological changes and new financial fraud detection strategies. Students
are very adept with the new incorporation of forensic accounting and have
expressed satisfaction with the program changes, and want the forensic
accounting education to continue or even increase. Forensic accounting could
prove to be a great success in fighting corruption and fraud in developing countries with weak
and unstable economies like Nigeria. While there is little forensic accounting courses offered by
universities, it is an emerging topic and could positively impact economies by taking away the
poor ethical decision making of businesses (Efiong 2012).
Forensic accounting is a rapidly growing area of demand for accountants, and it is used to
examine the illegal financial activities of businesses. A study was conducted in Kogi, Nigeria
and gathered its information from five different government agencies to uncover if the agency
was committing fraud. Arithmetic equations were used to predict the probability that an agency
had committed some sort of financial fraud. The Fraud committed by the agencies appeared to be
representative of all 16 of the ministries in the organization as defined by the equations. In the
study a majority of the participants understood the purpose and importance of forensic
accounting. It was discovered that external auditing was nowhere near as effective as internal
forensic accounting, because it is much easier for a company to police itself. Additionally, the
presence of forensic accounting greatly reduces all fraud within an organization (Okoye
2013).

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Conclusion
Ultimately, the forensic accounting discipline is a new concept and
educators have a lot of work to do in order to provide accounting students
with the resources they need to specialize in this new field. New curricula in
forensic accounting will further decrease the amount of fraud in the world
economy and will allow organizations to generate more accurate and
dependable financial statements so the government can better monitor the
transfer of money. While the academic programs still need to employee more
competent teachers and encourage student participation, the necessary
steps are being made to provide a more successful accounting industry. It
has allowed for accountants to keep up with rapid advancements in
information technologies, which has uncovered fraud and financial corruption
in companies and is becoming more effective every year. Studies have
shown that CPA firms are looking into using forensic accounting more widely,
and new SEC standards allow this new discipline to have more influence.

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References
Carnes, K. C., & Gierlasinski, N. J. (2001). Forensic accounting skills: will
supply finally catch up to demand. Managerial Auditing Journal 16, 6:
378382.
Doost, R. K. (1999). The missing links in accounting education. Managerial
Auditing Journal 14,3: 93114.
Efiong, E. J. (2012). Forensic Accounting Education: An Exploration of Level
of
Awareness in Developing Economies - Nigeria as a Case Study.
International Journal of Business and Management 7, 4: 26-34
Fajardo, C. (2014). Forensic Accounting- A Growing Niche in the Field of
Accountancy. Journal of American Academy of Business, Cambridge
19, 2: 16-23

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Federal Bureau of Investigation. (2011). Financial Crimes Report to the Public. Retrieved from
fbi.gov
Grey, C. (2003). The Real World of Enrons Auditors. Organization 10, 3: 572- 576
Heitger, L. E., & Heitger, D. L. (2008). Incorporating Forensic Accounting and Litigation
Advisory Services Into the Classroom. Issues in Accounting Education 23, 4: 561-572
Imoniana, J. O., Antunes, M.T. P., & Formigoni, H. (2013). The Forensic Accounting and
Corporate Fraud. Journal of information systems and Technology Management 10, 1:
119-144
Okoye, E. I., & Gbegi, D. O. (2013). Forensic accounting: a Tool for Fraud Detection and
Prevention in the Public Sector. International Journal of Academic Research in Business
and Social Sciences 3, 3: 1-20
Pearson, T. A., & Singleton, T. W. (2008). Fraud and Forensic Accounting in the Digital
Environment. Issues in Accounting Education 24, 3: 545-549
Rezaee, Z., & Burton, E. J. (1997). Forensic accounting education: insights from academicians
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Watters, M., Casey, M. K., Humphrey, J., & Linn, G. (2007). CPA Firms Offering of Forensic
Services Surprisingly Consistent Over Time: are CPA's Missing out on a Forensic
Accounting Gold Rush? Academy of Accounting and Financial Studies journal 11, 2:
89-95