Distinguishing Features
∞ Delivers a private-property, economic conception of value (a function of both monetary worth and informational utility); with an accounting orientation to the fraudulent transfer of such value (logical, programmatic, procedural).
∞ There are principles of accounting for the phenomena of normal (non-fraudulent) transactions. There are further principles of accounting for the phenomena of abnormal (fraudulent) transactions. The fundamentals of these latter principles are established in Principles of Audit Surveillance.
∞ Emphasizes that in order to analyze and understand the accounting effects of inside theft, it is essential to obtain a clear distinction between the three phases of a theft sequence: the theft act, concealment manipulations, and conversional manipulations. Further, develops identification procedures to independently search for the evidences of manipulations associated with each phase.
∞ While risk-based in the sense that it advocates, within the full array of audit surveillance techniques, high probability tests for high-frequency inside theft patterns and focused searches for active complements within loosely controlled accounts, Principles of Audit Surveillance nevertheless provocatively challenges the efficacy of the prevailing risk assessment orientation of the current financial audit to the purpose of detection and deterrence of inside theft.
∞ Establishes the concept of the “functionally fraudulent” accounting manipulation, from which the objective of the entire economic manipulation may be derived. Further, demonstrates the logical procedures through which accounting manipulations relating to any phase of the theft sequence may be used to identify the “functionally fraudulent” accounting manipulation.
∞ Adopts a scientific orientation to the study of the abnormal accounting phenomena of inside theft, establishes the scientific basis for the use of accounting phenomena in detection of inside theft, and proposes an initial standard of care for ownership protection against inside theft which comports with the general maxim that “one test is worth a thousand expert opinions.”
∞ Outlines a comprehensive system for ownership protection against inside theft, of which active detection through audit surveillance testing, operating as an effective deterrent, is but one part.
∞ Clarifies the scope of the role of the accountant within any general system for protection against inside theft.
∞ Demonstrates the valuable, but inherently limited, role of internal control in any general system for protection against inside theft; and shows that inspection of internal controls is an incidental, second-order result of audit surveillance testing.
∞ Champions an affirmative (non-contingent), routine duty of the accountant to the employer as a measure of ownership protection against inside theft, and segregates this duty from more broadly based preventive measures.
∞ Positions audit surveillance as an objective and pragmatic (evidence based) assurance engagement, as opposed to a monitoring function or attestation engagement (as currently conceived).
∞ Identifies critical areas for logical decision-making, professional judgment, and procedural protocols in the identification, collection, interpretation, evaluation, and utilization of accounting evidence.
∞ Simultaneously portrays a re-invigorated role for cost accounting and an enhanced role for managerial accounting generally, by fostering a holistic organizational perspective within which the desirablilty of expanding the underutilized core of double-entry accounting so that it permeates the entire business (through planned procedures and controls) is highlighted.
∞ Provides a platform upon which fraudulent financial reporting may be analyzed as a form of inside theft.
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