Forensic accounting is a specialized field of accountancy which investigates scams and frauds and analyze financial information to be used in legal proceedings in the court. It uses auditing, accounting and investigative skills to conduct investigations into fraud and theft by way of investigative accounting and litigation support.
It consists of two major components:
• Investigative Accounting: Criminal matters like employee theft, securities fraud, insurance fraud etc., provisions and suggestions regarding possible courses of action.
• Litigation Support: Quantification of economic damages amount, accounting assistance in litigation matters.
Hence it can be concluded that “Forensic accounting” is the practice of utilizing accounting, auditing, and investigative skills to assist in legal matters. Forensic accounting is the specialty practice area of accountancy that describes engagements that result from actual or anticipated disputes or litigation.
Forensic accountants often assist in professional negligence claims where they are assessing and commenting on the work of other professionals. Forensic accountants are also engaged in marital and family law of analysing lifestyle for spousal support purposes, determining income available for child support and equitable distribution.
Forensic accounting as a career opted by the person who obtained minimum of a bachelor’s degree/commerce degree and a chartered accountant membership in a body of certified accountants can go for specialize in forensic accounting.
There are several organizations that provide training and additional certification for forensic accountants. Each organization requires that its members possess varying degrees of education and experience, and they must sit for additional exams. These certifications show that a forensic accountant has training and experience beyond that of a standard accountant.
The Certified Forensic Accountant (CRFAC) program from the American Board of Forensic Accounting assesses Certified Public Accountants (CPAs) knowledge and competence in professional forensic accounting services in a multitude of areas. Forensic accountants may be involved in both litigation support (providing assistance on a given case, primarily related to the calculation or estimation of economic damages and related issues) and investigative accounting (looking into illegal activities). The American Board of Forensic Accounting was established in 1993.
The International Institute of Certified Forensic Accountants, Inc. IICFA – USA formerly (Association of Chartered Certified Forensic Accountants, ACCFA) is an international organization for Forensic Accounting Professionals globally. The IICFA is incorporated in the USA under the State laws of Delaware. The IICFA awards the CCFA and the CGFA Credentials to only individuals who have passed the rigorous qualifying examinations held by the Institute.
The Council of the Institute of Chartered Accountants of India, recognizing the need for Forensic Accounting and Fraud Detection, in the emerging economic scenario, has decided to launch a Certificate Course on Forensic Accounting and Fraud Detection.
International certification courses are available for those aspiring to become Certified Forensic Accountants, with the Certified Fraud Examiner (CFE) from the Association of Certified Fraud Examiners (ACFE) being highly recognized.
As the U.S. Bureau of Labor Statistics (BLS) explains, “Many forensic accountants work closely with law enforcement personnel and lawyers during investigations and often appear as expert witnesses during trials.” But don’t think that means your days as a forensic accountant will be repetitive or routine.
Online financial transactions in particular have become even more complex, giving perpetrators of fraud a false sense of security that their actions will never be uncovered. The reality is, however, that forensic accounting regularly keeps up to date with developments in technology and is constantly devising new ways to uncover irregularities.
Forensic Accounting and Fraud Detection specialisation is in increasing demand considering increasing incidents of cyber-crimes and frauds detection. It is the practice of utilizing accounting, auditing, CAATs/ Data Mining Tools, and investigative skills to detect fraud/ mistakes
Forensic accountants utilize an understanding of business information and financial reporting systems, accounting and auditing standards and procedures, evidence gathering and investigative techniques, and litigation processes and procedures to perform their work. Forensic accountants are also increasingly playing more proactive risk reduction roles by designing and performing extended procedures as part of the statutory audit, acting as advisers to audit committees, fraud deterrence engagements, and assisting in investment analyst research.
Forensic accounting can be used to prove that a business or individual has suffered financial loss and to identify the perpetrators of said fraud. It can be used to establish the motives and methods used by the fraudsters and the involvement of the alleged perpetrators.
forensic accountants are instructed to help resolve commercial disputes — such as disagreements between shareholders and instances where a business has suffered losses due to interruption of its trade which was caused by a third party.
The job of a Forensic Accountant is to study the provided data related to the case. From this, they must determine how the money was ‘stolen’, and how to recover it. Forensic accountants provide their knowledge of investigating, accounting, and auditing to collect and present evidence related to fraud. They may also be asked to present their findings in court in the case of litigation.
Sometimes the Internal Audit of the companies themselves may fail to notice the red flags. In this case, they hire Forensic Accountants to follow the trail for them. Even if the audit committee is able to detect when and how fraud occurs, they usually do not have the resources or time to carry out in-depth investigations. These functions are then left to the team of Forensic Accountants.
Forensic accountants combine their accounting knowledge with investigative skills in various litigation support and investigative accounting settings. Forensic accountants are employed by public accounting firms’ forensic accounting divisions; by consulting firms specializing in risk consulting and forensic accounting services; or by lawyers, law enforcement agencies, insurance companies, government organizations or financial institutions. Due to heightened awareness and growing intolerance of fraud, demand for forensic accountants is rapidly increasing.
In today’s world there is a great scope for forensic accounting in investigation during amalgamation, acquisition, merger, tax investigations, economic crime investigations, specialized audits, all kind of civil litigation supports, and even in terrorist investigations. We have to adopt and adhere strictly the forensic accounting at all the levels of government, public and corporation accounting as an accounting tool to cure and prevent the entities from frauds.
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