I85PREP
⌘ K
CVA study materials
CVA study resources

CVA: Forensic Accounting

CVA · Work through your exam, one topic at a time.

All guide sections

Forensic Accounting

The Forensic Accounting domain tests how you detect, document, and quantify financial fraud and misstatement. Expect questions on asset misappropriation schemes, financial statement fraud, analytical procedures, and the net worth method for proving unreported income.

Schemes and red flags

  • Asset misappropriation includes skimming, cash larceny, billing schemes, payroll fraud, and check tampering.
  • Corruption includes bribery, kickbacks, and undisclosed conflicts of interest.
  • Financial statement fraud often involves improper revenue recognition, concealed liabilities, and asset overstatement.
  • The fraud triangle (pressure, opportunity, rationalization) explains motive, but proof requires evidence, not motive alone.

Analytical techniques

  • Vertical (common-size) and horizontal (trend) analysis highlight unusual margins, growth, or account balances. Ratio analysis compares relationships over time and against peers.
  • Benford's law tests the distribution of leading digits; nonconformity is a red flag, not proof of fraud.
  • The net worth method computes unreported income as: increase in net worth + personal expenditures − reported income − nontaxable receipts such as gifts, inheritances, and loans.

Evidence and interviews

  • Preserve electronic evidence with a forensic image before analysis, and maintain a documented chain of custody.
  • Conduct interviews from peripheral witnesses toward the subject; early interviews should gather facts rather than accuse.

Worked example

Beginning net worth is $500,000 and ending net worth is $800,000, an increase of $300,000. Personal living expenses are $150,000, reported taxable income is $350,000, and the subject received a $50,000 inheritance. Unexplained income = $300,000 + $150,000 − $350,000 − $50,000 = $50,000. If the result were negative, no unreported income would be indicated, but the analysis should still test for omitted assets or third-party accounts.

Traps

  • Treating a net worth increase as taxable income without adding expenditures and subtracting reported income.
  • Forgetting nontaxable sources such as gifts, loans, and inheritances.
  • Relying on Benford's law alone as proof.
  • Failing to consider innocent explanations for anomalies.
  • Contaminating original electronic files by opening them directly.