Audit surveillance, but one of six components in Cardwell's comprehensive system, is a strategy centered on the accounting system which uses incisive tests of limited scope to detect evidences of insider theft. It is, in short, a risk-based application of the common sense notion that to detect something, one must test for it. The audit surveillance strategy is implemented through auditing procedures and techniques directed specifically toward detection of fraud; including tests of reasonableness, verification methods (i.e., the corroborative techniques, mathematical verifications, and account-inventory comparisons), conversion surveillance, and oral inquiry.

The presentation includes foundation theory in fraudulent accounting and the fascinating dimension of accounting manipulations and the methods used to disguise and conceal such manipulations, e.g., the concepts of psychological deception, pre-theft concealment, warehousing of complements, critical period, retroentry, ancillary concealment, and disassociation. In addition, full coverage of the timely topics of verification of journal entries and the verification of financial reporting processes are presented within the overall audit surveillance framework. Explicitly considers effects of forged, altered, substitute, decoy, and other (simulative) dissimulative documentation.

Rather than relying upon analyses of "red flags," risk scenarios, risk assessments, psychological profiles or any other subjective indicators, Principles of Audit Surveillance advocates direct objective testing for "evidences of manipulations" as the most effective and efficient strategy for detection and deterrence of accounting fraud; thus obviating the obfuscating influence of many deceptions used by thieves to perfect the thefts. This approach to auditing for fraud is an essential aspect of Cardwell's comprehensive system of ownership protection.

Clarifies the role of the accountant in any general system of ownership protection and outlines initial standards in auditing for fraud, which is accomplished by incisive tests of limited scope upon the books and records which comprise the accounting system (defined expansively). These tests seek to detect complements, fraudulent entries and omissions, falsifications of accounts and inventories (both quantitatively and qualitatively), and certain forms of conversion. The tests vary in focus, direction, and timing, and are supplemented with the overall techniques of analytics, direct observation and oral inquiry. While the tests are short and efficient, they are exceedingly thorough and utilize all sources of corroborative data ("for corroboration is of the essence in audit surveillance").

Principles of Audit Surveillance is the first book to exploit the full memory, power, and beauty of the structural logic of double-entry accounting for the purpose of detection and deterrence* of inside theft.

*Deterrence may be considered to be a function of both the likelihood of discovery and the consequence of discovery. Principles of Audit Surveillance is all about increasing the likelihood of discovery within practical cost-benefit constraints. Cardwell quotes Herman W. Bevis to convey this idea: "These odds (the likelihood of discovery) must be increased to the point where, no matter how much he (the inside thief) is a gambler, the odds will be prohibitive."

Cardwell's deep conceptualization and sound exposition of inside theft is delivered within a complete systematic framework wherein the reader will also find original outlines for: split-control tests, targeted insurance against loss from fraud, limited liability of the surveillance auditor, the periodic forensic audit ("cyclical audit surveillance"), routine scrutiny of documents, employee screening, detection of the override of controls, incentives and behavior, conducting effective evidence-gathering employee interviews, and much more.

This book provides the principles of accounting for inside theft and the basic logic and language of auditing for fraud.

Recommended: Accounting Information Systems; Probability & Statistics.

An excellent component of an advanced auditing course or the first course in a quality forensic accounting sequence.