Forensic Accounting
Forensic accounting is about investigation of fraud, financial manipulation or special investigation by performing extremely detailed research and analysis of financial information. Forensic accountants have usually accounting, auditing, and investigation background and have specialized skills to examine the books of accounts, record and documents to establish their finding and gather evidences for further use.
Forensic accountants can also help quantify the amounts involved in a legal dispute. This is especially useful in insurance claims and divorce proceedings.
Many large companies have a forensic accounting department to help them prevent accounting malpractices.
KEY features
- Forensic accounting is a combination of accounting and investigative techniques used to discover financial crimes (if any).
- Forensic accountants analyse whether a crime occurred and assess the likelihood of criminal intent. Such crimes may include employee theft, falsification of financial statement information, identity theft, or insurance fraud.
- Forensic accountants explain the nature of a financial crime to the courts.
- Forensic accountants trace funds, identify assets and conduct asset recovery, and perform due diligence reviews.
- Forensic accounting is used by the insurance industry to establish damages from claims.
- Forensic accounting is utilized in litigation when quantification of damages is needed. Parties involved in legal disputes use the findings of a forensic accountant to resolve disputes via settlements or court decisions.
- Forensic accountants adjust their methods and goals for each case. They may use both paper- and computer-based investigating techniques.
- A forensic accountant is called when there is already a suspicion of fraud. They examine the books of accounts and look for red flags or discrepancies that indicate the fraud.
TYPES OF FORENSIC ACCOUNTING
Forensic accountants perform a variety of tasks during their investigations. They collect data as they research funds, assets, and similar financial information. There are various types of forensic auditing that can take place, and they are typically grouped by the types of legal proceedings that they fall under:
- Financial theft
Cases where accounting fraud committed by the company’s employees, customers, or outsiders. Such issues are referred by management to forensic accountants. Forensic accountants investigate the matter and report to management or authorities.
- Insurance Claim Investigation
In cases where doubtful claims submitted by customers then these accountants’ role is to obtain financial records related to insurance claims and evaluate insurance claims to establish that claims meet policy conditions and no excess claims or payments made.
- Disputes between Partners
In partnership business if any dispute arises between partners, then forensic accountants may involve. In such a case, the forensic accountant analyses the accounting and financial records to determine the right compensation.
- Securities fraud
Insider trading is a good example of security fraud. Security fraud can be committed by individuals, stockbrokers, or institutions that deal in stocks.
- Bankruptcy
When a company files for bankruptcy, forensic accountants can examine the accounts to determine the sequence of events that lead to bankruptcy. They can investigate the real reason of bankruptcy by digging the financial statements and events occur. In cases bank loans are involved then bank may engage forensic accountants to know the real reasons for bankruptcy.
- Mergers and acquisitions
Cases where two businesses planning to join hands as a Mergers then they may hire independent forensic accountants. A forensic accountant can help determine the actual status of the company’s finances, its values, its return on investment, net wealth and any other potential issues.
- Tax evasion or Concealment
People and companies try to evade or conceal taxes by downplaying their earnings and assets. A forensic accountant helps determine if there has been any coverup to gain tax benefits.
- Professional negligence
These are the claims arises due to professional negligence by accounting professionals, advocates, and other professionals, and a forensic accountant can determine if the claimed value is factual.
- Divorce Claims
Where there is a divorce then a person may hide their money and assets from their spouse to cheat them of their fair share. In such cases, a forensic accountant can be hired to trace and report any hidden assets.
- Money laundering
Illegal money may often be routed through a company or person’s accounts. A forensic accountant helps detect such money and trace it to its source and report it for further actions.
More details can be viewed on: http://www.forensicglobal.org/
ABOUT THE AUTHOR
Humayun Atif | CMA, CPA, CA (FIN), MS-IT, Oracle Certified, CA Articles from Big4
Atif is passionate about Business, Tech, and the written word. He is the author of the book ‘IFRS Made Easy’. He is a tax and IFRS coach and the founder of accountingblogger.com
