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Forensic Accounting

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In a country like Bangladesh where the unethical aspects of creative accounting are rampant, the practice of forensic accounting (i.e., investigative accounting done by forensic accounting consultants to solve problems in courts) needs to be introduced and recognized. Forensic accounting’s “Financial Statement Alert” scrutinizes public companies’ questionable accounting practices, advises investors to examine carefully shareholder letters and management’s discussion and analysis of financials, and to try to read between the lines by looking at four basic areas: (i) extent of a company’s earnings from operations, as opposed to onetime occurrences, warning signs in the financial statements (e.g., shrinking profit margins, or fast growing inventories or receivables, or insufficient cash generation, etc.), (iii) changing accounting methods to more favorable one, or using accounting methods different from the ones the competitors use, and (iv) assets or liabilities on (or off) the balance sheet that might affect future earnings .
Creative accounting has long been in practice in Bangladesh. Most of the companies in Bangladesh create accounts in an undesirable way to attract investors, while some of the companies practice it with a good motive of refining the accounting system. It is a good sign. Another healthy sign is that experts have started feeling that the unethical practice of creative accounting should be stopped by all means. To detect and prevent the pitfalls of creative accounting, punitive measures have to be taken by national accounting bodies, courts and Government. The country needs to have a sound, strong stock market as the foundations of free and fair enterprise system. Ethical codes need to be given much importance by the Accounting Profession. Accountants need to understand ethical codes in proper perspective and follow them accordingly

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