Master of Science in Accounting (MAcc)

Accounting Department

Course No: ACCT 632Course Name: Forensic Accounting

Research ProposalAcademic Year: 2-1438-1439Instructure: Dr. Ahmad Alsalman

Student. No:381225092

Student Name:Noorah alshayea

Points earne

dfrom

10

Points earnedfrom100

Maximum pointsTraitsObjectiveNo

220

Identify and summarize the

research problem and state the

research question

Students will demonstrate that they are

critical thinkers

1

110Identify the

purpose of your research

2

110Identify the importance of your research

3

110Identify the

accounting issue of your research

4

220Identify and

summarizes the literature review

5

220Identify the

research hypothesis

6

220Identify the

research model and the variables

7

110Identify the data and sample

8

12120Total

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1) Identify and summarize the research problem and state the research question 2) Identify the purpose of your research 3) Identify the importance of your research4) Identify the accounting issue of your research5) Identify and summarizes the literature review6) Identify the research hypothesis7) Identify the research model and the variables8) Identify the data collection and Sample.9) Identify the references.

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The Effect of Procedures Forensic Accounting on The Reduction of Creative Accounting

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Contract Page

Introduction 5

Statement of the problem and questions 5

Purpose of the study 6

Importance of the study 6

Contribution of the study 6

Accounting issue of the study 7

Literature Review 7

Hypothesis 10

The model and the variables of the study 10

The data collection and Sample of the study 11

References 12

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IntroductionManipulation of accounting is the transaction that is made in order to change the concept of external information users in the company. Aims to capitalize on this by demonstrating the financial structure and performance of companies differently. Accounting manipulation can be divided into two categories such as tampering with accounting principles and standards, and manipulation consistent with accounting principles and standards. In the literature, while profit management, profit stability, aggressive accounting, accounting clean-up and creative accounting are accepted as processing processes in accordance with accounting principles and standards, fraud is a rig that conflicts with accounting principles and standards. Fraud is usually a deliberate misrepresentation of a financial purpose and harms the third person reported. When it comes to professional aspects, fraud can be defined as transactions that are intentionally committed and which are not carried out in accordance with corporate procedures and actions that harm the business and / or investors.In a global abuse study published by ACFE in 2016, it was revealed that the accounting department of the most fraudulent circles. With the fact that the accounting department is in touch with each department, it controls the entire organization, it requires a lot of professionalism as a technical knowledge, cannot be controlled by other departments, makes accounting more open to fraud.Accountants were also referred to as "fraud investigators" at the beginning of the 20th century. Over time, the growth and complexity of companies created different responsibilities for accountants, and different and independent legal methods emerged to detect and prevent fraud. Forensic accounting, in which both forensic and accounting concepts are used, emphasizes the legal dimension and accounting that arise as a result of commercial transactions. Criminal accounting; Use accounting, auditing, legal concepts, principles, theories, standards and methods to resolve legal issues with Research Methodology. The difference between traditional accounting and forensic accounting is a system based on detecting and investigating accounting frauds.

Statement of the problem and questionsMany companies are adjusting their financial statements to improve the financial situation in terms of profitability or in terms of financial position to achieve their own goals. The management uses creative accounting techniques, taking advantage of the diversity of accounting alternatives in the preparation of financial statements (Bhasinh, 2016). On another hand, the aim of an audit is not necessary to fund and evaluate evidence, but rather to perform enough audit procedures to give a feeling of comfort to the auditor to give an opinion. The study by (Guénin-Paracini, Malschb, & Pailléc, 2014) suggests that an audit is centered around transforming an entity’s financial statements from an inherently untrustworthy into a form that the auditor, and ultimately the public, can trust.

So, there is a risk that material distortions will be exposed as a result of creative practices. Produces unfair financial reports misleading other parties used in the financial statements leading to global crises of collapse, bankruptcy and corporate or civil conflicts of private financial disputes. This does not mean that the auditor fails to follow the principles and auditing standards and to evaluate the procedures required for the audit. But those who practice creative accounting have a very high qualification, vast experience and knowledge skill who have been able to hide their legal but immoral practices (Bhasinh, 2016). Therefore, the external auditor is not sufficient to disclose

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such practices (Gregory , Negangard, & Oler, 2017). We need more skills and expertise to uncover these practices and provide a report that will help the judiciary resolve the dispute and make a fair judgment. Also, giving the owner's a reassure in the absence of fraud. Moreover, Saudi Arabia's entry into international investment and the application of international standards are a problem for foreign investors in securing and investing in Saudi Arabia. The main question that the research focuses on is:

Are the procedures of forensic accounting limiting the effects of using creative accounting on financial statements in financial situations?

Because creative accounting cannot be limited, the sub-questions of this study were concentrated in creative accounting: fraudulent financial reports and earning management.

Purpose of the studyAs a result of the global economic crises and a large number of financial disputes in courts at the level of companies or persons. According to the statistics of the Ministry of Justice in Saudia Arabia, the number of commercial cases submitted to the Ministry of Justice is 3281(in Jumada of the year 1439 Hijri). The purpose of this research is to clarify the role of the forensic accountant in the courts or requests for special arbitration. From writing reports and tracking events, collecting facts and data, and developing strategies to prevent and discover creative accounting. Clarify the impact of procedures used by the forensic accountant to reduce creative accounting. On another word, to highlight the importance of forensic accounting procedures and their role in reducing the practice of fraudulent financial reports and earning management when preparing financial statements.

Importance of the studyForensic criminal techniques are evolving. One of the new areas of detection and limitation of accounting crimes is a forensic accounting. If appropriate forensic accounting is performed, prevention, diagnosis, and remediation will be ensured and the implications of using creative accounting. Forensic accounting has a role in increasing the efficiency and performance of the external audit, thereby reducing opportunities for companies to manipulate and fraud. Also, access to fair judgments in the courts. And reassure users of the financial statements about the methods and procedures used for the absence or reduction of fraud or disinformation in the financial statements. Forensic accounting helps restore confidence in the accounting profession by reducing the creative accounting. This research contributes to the need to adopt forensic accounting by a global authority that sets limits and skills to be provided by the forensic accountant.

Contribution of the studyThis study is an extension of the study by (Aamer & Al-Hassan, 2016). This study is different as it includes more types of creative accounting, focusing on the division of creative accounting according to the hypotheses mentioned. The study area and sample also varied because it includes all offices licensed to operate in Saudi Arabia. In addition to allocating it to external auditors only, which increases the quality of the study.

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Accounting issue of the studyFrom one issues orientation to the accounting profession, the collapse and bankruptcy of large companies have an impact on the global economy. also, in a global abuse study published by ACFE in 2016, it was revealed that the accounting department of the most fraudulent circles. This has weakened confidence in the profession of accounting and financial data provided. This study contributes to the reduction of one of the causes of the collapse are creative accounting. This research focuses on creative accounting that legal but unethical. This study focuses on highlighting the procedures of forensic accounting limiting the effects of using creative accounting on financial statements.

Literature ReviewPresentation of some previous studies in emerging countries:Getting Comfortable on Audits: Understanding Firms’ Usage of Forensic Specialists, study by (Jenkins, Negangard, & Oler, 2017). Was done a conduct an exploratory survey of 48 experienced audit and forensic professionals in the five large international firms. The results are that the discomfort some auditors feel in the contemporary auditing environment is leading to changes in the rituals that underlie traditional audits such that they seek comfort afforded them through forensic specialist involvement. Although their involvement varies, forensic specialists assist audit teams by providing both guidance and direct assistance across the audit in areas including fraud brainstorming, design of procedures to test for fraud, and review of results of fraud‐related testing. In addition, forensic specialist involvement may lead to greater comfort as evidenced by the perceived identification by forensic specialists of additional audit findings related to material misstatements, financial reporting fraud, misappropriation of assets, and internal control deficiencies.

A study focused on the impact of criminal accounting and traditional review on the failure of selected commercial banks in Nigeria by (Adetoso & Akinselure, 2016). Data were analyzed (10) commercial banks. Distribution of 100 questionnaires on a sample of banks. The result of the analysis shows that criminal accounting has a significant impact on creative accounting in selected banks. Based on this finding, the study recommends that commercial banks ensure that a large number of their employees are trained regularly on criminal accounting so that they can reduce the risk associated with creative accounting.

The objective of the study by (Domino, Stradiot, & Webinger, 2015), is to investigate factors which may influence or bias judges’ decisions to exclude or accept the testimony of accounting expert witnesses, under the US standards. Accounting experts are increasingly providing expert testimony as a part of financial litigation support services. The sample of 130 professional accountants serving as expert witnesses, were analyzed in 2010 - 2014. Findings suggest that judges are objective in evaluating the testimony provided by accounting experts under Daubert/Kuhmo guidelines and that they may be immune to biases based solely on gender, complexity, and familiarity.

From the results of the study by ( Blessing, 2015)in Nigeria. For a sample of 100 respondents were administered questionnaire from a population size of 133. There a strong evidence has been found of the effectiveness of techniques used by legitimate

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accountants in helping to reduce the problem of creative accounting. There has also been strong evidence that the emergence of legitimate accountants has restored confidence in the credibility and report of corporate companies. The results of this study show that there is a need for legal accountants to have strong knowledge and skills in accounting and auditing.

The study by ( Imoniana, Antunes, & Formigoni, 2013) is aimed at analyzing the characteristics of forensic accounting services performed by accounting firms in Brazil, using an exploratory approach. It accepts the premise that the bone of contention in some unhealthy business environments is the inability of an auditor to track frauds. The conclusion that the idea that frauds have been least detected by auditors begins to gain shape as auditors are more adequately trained to detect frauds instead of emphasizing the traditional segregation of duties and safeguard of assets.

The study by (Abdullah, 2016) , aimed to know the forensic accounting and professional specialization of external auditors and manipulation practices in financial figures, and test the relationships between these variables. Also, test the impact of professional specialization for external auditors as an intermediary variable in the role of forensic accounting in the discovery of fraud and manipulation practices. The study concluded that the practice of forensic accounting through the external auditors in Sudan increased their professional specialization in the client's activity. The study sample consists of 50 external auditors. The aim of this study was to focus on the professional specialization of the external auditors as a mediator variable. The result has an impact on the role of the practice of forensic accounting in detecting the practice of fraudulent financial reports, practicing profit management and practicing abusive accounting in Sudan.

The role of forensic accounting to facing the creative accounting practices and reducing their impact on the financial statements. Study by (Al-Khalidi , 2014). This research deals with the recognition of creative accounting and its methods that affect the credibility of the financial statements. Also, the methods and procedures introduced by the International Standard for Creative Accounting. Finally, what are the methods of forensic accounting that limit the effects of creative accounting. After that, an applied study was conducted in Palestine with the distribution of questionnaires to 50 external auditors and 18 those working in the judiciary. The most important results, there is a relationship between the procedures and activities practiced by forensic accounting and creative accounting practices. High rates of litigation and disputes on financial and commercial matters that require the use of a forensic accountant. There are no significant differences between external auditors and judiciary personnel regarding the role of forensic accounting in reducing creative accounting practices.

In the theoretical study of (Ibrahim & Haroun , 2014), entitled forensic accounting in the reduction of the practice of managing profits in the capital market in Khartoum. The main results of the study, the importance of forensic accounting in reducing corruption, the skills of the forensic accountant in assisting organizations in the development of internal control systems and can achieve forensic accountability external control of the performance of financial and ethical behavior in companies through methods and mechanisms of fraud detection.

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The Worksheet by (Ahmed, 2013) in Egypt, aims to highlight the role of the forensic accountant in reducing financial corruption practices. This study was aimed at accounting and auditing representatives in general, such as accountants in the Central Agency, the Department of Experts in the Ministry of Justice, Accounting and Auditing Offices, the Tax Authority, Capital Market Authority, academics and others. The study reached the definition of forensic accounting, its uses, and the skills to be provided by the forensic accountant.

There are many studies on Saudi Arabia that emphasize that the company use of creative accounting. such as a study by (Al-Qathami & Al-khayal, 2010), to know the extent of the practices of Saudi joint stock companies in profit management. The study sample consisted of 78 Saudi joint stock companies whose shares are traded on the Saudi Stock Exchange. This sample included industrial and industrial services. The study found that Saudi profit-making companies had a negative earnings management practice. While losing companies were managing profits positively.

Also study by (Halabi, 2009). Entitled The role of the auditor in reducing the effects of creative accounting on the reliability of the financial data of the researcher. This study was conducted on public shareholding companies. The study sample consisted of 150 external auditors. The results of the study that creative accounting is the process of taking advantage of the manipulation of accounting figures in order to get rid of compliance with accounting rules, and that affects the reliability of financial statements.

Furthermore, in Saudi Arabia, the study forensic Accounting in Saudi Arabia: Current Practices and Prospects: A Field Study by (Al-Saad, 2013). Where forensic accounting is defined, its importance and its role in the field of litigation and its current practice and exploring its prospects in the Kingdom of Saudi Arabia. The sample included 97 external auditors and 69 academics. One of the findings of the study is that forensic accounting aims to meet the need of the judiciary for financial experts who present their views on financial disputes. And to reassure the owners of legal procedures and the judicial and security authorities that commissioned the forensic accountant to write a report on the case. Its importance lies in meeting the needs of the legal courts for the most professional accountants, knowledge of the legal and legal aspects of financial disputes, their competence, and knowledge of accounting aspects.

Forensic accounting and reduction of financial and administrative corruption in the Kingdom of Saudi Arabia an applied study on the Asir Region by (Aamer & Al-Hassan,2016). The study included a random sample of 50 specialists (Sharia, Legal, Accounting, Administrative Sciences). 96% confirmed that there is a relationship between forensic accounting and other branches of accounting. 82% confirm that there is a difference between the skills of the forensic accountant and the external auditor. 96% stressed the importance of the role of forensic accounting in reducing financial and administrative corruption, with the need for a department of forensic accounting in the specialized administrative courts, public money control bodies, corruption bodies and investigation of money crimes. 84% There are obstacles to the application of forensic accounting in Saudi Arabia.

Hypothesis9

Based on American criminologist Donald Cressey developed a theory known as the Fraud Triangle that explains the factors that lead to fraud and other unethical behavior; Pressure, Opportunity, and Rationalization. Several studies in several countries have confirmed immoral fraud. Such as the study by (Kumar, Goyal, & Mitra, 2018) resulted in a positive as Indian company manipulated in the financial statements. Also, a study by (Hassan, 2015), that found that the banks in Sudan listed on the Khartoum Stock Exchange, has practiced earning management. The study found that the practice of earning management had a significant impact on profitability ratios, activity ratios, and stock indices. There are also many studies that confirm the practice of creative accounting in many companies in different countries of the world. Such as: (Iatridis & Kadorinis, 2009) in London, (Sun & Rath, 2009) in Australia, (Omurgonulsen & Omurgonulsen, 2009) in Turkey, and (Al-Qathami & Al-khayal, 2010) in Saudi Arabia. From the main research question these hypotheses were developed:

H1: The procedures of forensic accounting are limiting the effects of using creative accounting practices in fraudulent financial reports.

H2: The procedures of forensic accounting are limiting the effects of using creative accounting practices in the earning management.

The model and the variables of the studyThe purpose of the research problem and changing the alternatives to the problem determines the appropriate design for the research test. The aim of the study is to prove that the procedures of forensic accountant help to reduce creative accounting in fraudulent financial reports and earning management. That procedures of the forensic accountant are an independent variable. The dependent variable based on the above assumptions are financial reporting fraud and earning management. The Five Likert scale will be used to answer the questionnaires. The research depends on the SPSS analysis program and any other statistical tools that the researcher deems necessary. For better results two models were used:

1) FFR=β0−β1 NPFA ¿−β2TPFA¿−β3OPFA ¿+u

2) EM=β0−β1 NPFA¿−β2TPFA¿−β3OPFA ¿+u

Table1; Definition of Symbol and Measurement in The ModelSymbol Definition Variable Measurement

NPFA Number of Procedures Forensic Accounting.

Independent Variable

Number of procedures used in a single case or dispute

TPFA Time of Procedures Forensic Accounting.

Independent Variable

The timing of the proceedings used during a single case or dispute

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OPFA Order of Procedures Forensic Accounting.

Independent Variable

Arrange the procedures used during the case or dispute

FFR Fraudulent Financial Reports

Dependent Variable The percentage of disclosure of fraud in the financial statements in one report

EM Earning Management Dependent Variable The percentage of disclosure of the management of revenue in a single report

u The Percentage of Error in Model

The data collection and Sample of the studyThis study focused on specialists in Chartered Accountants in the Kingdom of Saudi Arabia. To practice the profession of the chartered accountant, they must be subordinate to an office that licensed by the Saudi Organization for Certified Public Accountants "SOCPA". Offices licensed to operate in the Kingdom of Saudi Arabia consist of: owner, partner, or/and employee. The number of offices in Saudi Arabia according to the latest statistic (SOCPA, 2018) are 186 offices and the number of persons authorized to practice the profession 328 person. Data will be collected by 80 questionnaires. The selected person should have experience in forensic accounting or be obtaining a certificate. so, we will be sent the questionnaires to the major offices in the Kingdom of Saudi Arabia.

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ReferencesAl-Khalidi , N. (2014). The role of forensic accounting to facing the creative accounting practices

and reducing their impact on the financial statements. University of Palestine Journal of Research and Studies, pp. 9-50.

Abdullah, A. (2016). The impact of professional specialization on the role of accounting in the discovery of manipulation practices In financial figures: an applied study on external auditors in Sudan. Journal of Public Administration, pp. 796-829.

Al-Saad. (2013). Judicial Accounting in Saudi Arabia: Current Practices and Prospects: A Field Study. Journal of King Abdulaziz University: Economics and Management.

Halabi, L. (2009). Role of the External Auditor Reduce the effects of creativity Accounting for the reliability of financial statements issued by Jordanian Public Shareholding Companies. Middle East University for Postgraduate Studies.

Hassan , O. (2015). Effect of profit management practice on evaluating the financial performance in the Sudanese banks listed on the Khartoum Stock Exchange - a field study. Khartoum: University of El Nilin - Faculty of Graduate Studies.

SOCPA. (2018, 3 1). Licensed Accountants. Retrieved 4 2018, from Saudi Organization for Certified Public Accountants: http://socpa.org.sa/getattachment/Socpa/Licensed-Accountants/Accounting-Offices/License18032018.html.aspx

Ahmed, K. (2013, 8 7). the role of the forensic accountant in reducing financial corruption practices. First International Accounting and Auditing Conference.

Ibrahim , H., & Haroun , M. (2014). Forensic accounting and its role in reducing the management of profits in the capital market in Khartoum. Al Mustansiriya Journal for Arabic and International Studies.

Blessing, I. N. (2015, 1 1). Analysis of Empirical on Forensic Use Accounting techniques in Curbing Creative Accounting. International Journal of Economics, Commerce and Management.

Adetoso, J., & Akinselure, O. (2016, 11 17). Impact of Forensic Accounting and Traditional Audit ing on Failure of Selected Commercial Banks in Nigeria. European Journal of Business and Management.

Investopedia. (n.d.). Forensic Accounting. Retrieved 4 22, 2018, from Investopedia: https://www.investopedia.com/terms/f/forensicaccounting.asp#ixzz5DPJxr65R

Investopedia. (n.d.). Creative Accounting. Retrieved 4 22, 2018, from Investopedia: https://www.investopedia.com/terms/c/creative-accounting.asp#ixzz5DPM1U0Af

Bhasinh, M. (2016, 4). CREATIVE ACCOUNTING PRACTICES: AN EMPIRICAL STUDY OF INDIA. European Journal Of Accounting Ffinance & Business, pp. 10-29.

Gregory , J., Negangard, E., & Oler, M. (2017, 9). Getting Comfortable on Audits: Understanding Firms’ Usage of Forensic Specialists. Contemporary Accounting Research.

Ministry of Justice. (2018). Open data. Retrieved from Ministry of Justice: https://www.moj.gov.sa/ar/OpenData/Pages/MonthlyReport.aspx

ACFE. (2016). 2016 GLOBAL FRAUD STUDY. Retrieved from Association of Certified Fraud Examiners: https://www.acfe.com/rttn2016/docs/2016-report-to-the-nations.pdf

Jenkins, G., Negangard, E., & Oler, M. (2017, 10 26). Getting Comfortable on Audits: Understanding Firms’ Usage of Forensic Specialists. wiley online library.

Domino, M., Stradiot, M., & Webinger, M. (2015, 4). Factors which may bias judges’ decisions to exclude accounting expert witnesses testimony. Accounting Research Journal.

Kumar, S., Goyal, V., & Mitra, S. (2018, 1). Do Indian Firms Manage Earning Numbers? An Empirical Investigation. Academy of Accounting and Financial Studies Journal.

Al-Qathami, F., & Al-khayal, T. (2010). Profit Management in Saudi Joint Stock Companies. Journal of the Faculty of Commerce for Scientific Research, pp. 241-310.

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Aamer, S., & Al-Hassan, A. (2016). The Concept of Forensic Accounting and its Role in the Reduction of Administrative and Financial Corruption in the Region of Asir. Journal of Accounting, Auditing and Governance, 1(3), pp. 41-76.

Iatridis, G., & Kadorinis, G. (2009). Earnings Management and Firm Financial Motives: Afinancial Investigation of UK Listed Firms. International Review of Financial Analysis, pp. 164-173.

Sun , L., & Rath , S. (2009). An Empirical Analysis of Earnings Management in Australia. International Journal of Business, Economics, Finance and Management Sciences, pp. 150-166.

Omurgonulsen, M., & Omurgonulsen, U. (2009). Critical Thinking about Creative Accounting in The Face of a Recent Scandal In The Turkish Banking Sector. Critical Perspectives on Accounting, pp. 651-673.

Guénin-Paracini, H., Malschb, B., & Pailléc, A. (2014, 4). Fear and risk in the audit process. Accounting, Organizations and Society, pp. 264-288.

Imoniana, J., Antunes, M., & Formigoni, H. (2013, 2). The Forensic Accounting And Corporate Fraud. Journal of Information Systems and Technology Management, pp. 119-144.

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