September 2024

Hello Students!

Accounting is important because it involves people’s money and money may be the most resourceful asset on the planet.

In the Purdue Global Accounting Program you will learn new skills in analyzing, classifying, recording, reporting, and summarizing financial data. Financial users are interested in accounting data to ensure the legal and ethical standing of the business, the tax status, the financial position, and the operating performance to discern important decisions that involve people’s money. An old humorous cliché evolved: “people are funny about their money” but money is certainly not funny.

Accounting is an ancient record keeping process accounted for throughout the centuries. The Scriptures impart wisdom as King David’s son Solomon, dubbed the wisest and richest man on earth and who loved a good party, determined money is integral to all other resources as he chronicled, “A feast is made for laughter, and wine makes merry: but money answers all things” (King James, 1769/2017, Ecclesiastics 10: 19). Thus, other resources rank below money classifying money supreme supporting the popular cliché “cash is king.” It will always be important to count money, keep accurate records, and account for resources making accounting an excellent career choice. Yet, progress in technology baits the question who will be counting the money?

Will AI replace human accountants?

The advent of AI has created a buzz about the future of accounting. Will AI replace human accountants?

While AI is changing the landscape of business and will potentially impact all career tracks, the need to verify data, problem solve from a human perspective, and recount the money continues to exist. Analyzing accounting information requires human analysis applying reason and trust. Machines cannot replace emotion, continue to lack human trust, and cannot make moral decisions. So far, machines have not outperformed humans in solving accounting problems (Marks, 2024).

However, there are some thought-provoking conversations currently under debate. Afterall, people are still funny about their money. We will attempt to delve into the advent of AI and the future of accounting in the next issue to address some of these concerns and continue to stay abreast of this ongoing dilemma. 

References

King James Bible. (2017). King James Bible Online. https://www.kingjamesbibleonline.org/ (Original work published 1769).

Marks, G. (2024, January 1). The (very) emerging role of AI In the accounting industry. Forbes. https://rb.gy/az7ppz

Sylvia DeAngelo, Ph.D.

sdeangelo@purdueglobal.edu

In this second article in Investigative Accounting, I will examine the main theory of fraud that has been adopted by the accounting profession (in the AICPA’s AU240)—The Fraud Triangle. According to Statements on Auditing Standards (SAS) No. 99, auditors are not responsible for detecting all fraud in the financial statements that they audit but are required to conduct a detailed risk assessment (discussed at length in the AICPA’s AU316). Auditors use the fraud triangle to design their audits, making sure that their clients apply internal controls consistently and effectively to reduce the risk of fraud. Forensic accountants also need to be proficient in understanding and applying the fraud triangle because they use this theory in investigations as they analyze fraud cases.

Here is a little background on the Fraud Triangle:

The Fraud Triangle was a result of research by Donald Cressey.  Cressey was a student of pioneer fraud researcher Edwin Sutherland (Sutherland first coined the term “white collar crime”) at Indiana University in Bloomington.  In his research, Cressey interviewed numerous embezzlers imprisoned in Terre Haute, Indiana. He originally called his theory “the three conditions for fraud to occur.”  Professor Steve Albrecht was the first to use the name “Fraud Triangle” for Cressey’s theory. He compared it to the fire triangle (all three sources--fuel, oxygen, and heat-- had to be present for the fire to occur!

The Fraud Triangle is very similar to the criminological theory of means, motive, and opportunity. The first condition is a perceived pressure. There is some need that is pushing the person toward committing fraud, such as gambling losses or addiction, or manipulating earnings to receive a bonus.

The second condition is opportunity. The person sees a way to carry out the fraud. The opportunity could be having access to assets (cash or inventory), or a weakness in internal controls.

The final condition that must be present is rationalization. The person must be able to justify their actions so as to minimize the criminality of their behavior. Being passed over for a promotion, having a family member that is in need financially or medically, or using language to soften the criminal behavior. For example, to minimize embezzlement at a bank, one person convinced herself that it was not stealing, but that she was 

Cynthia Waddell, PhD, CPA, CFE

cwaddell@purdueglobal.edu