1. Forensic accounting, forensic accountancy or financial forensics is the specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation.
2. "Forensic" means "suitable for use in a court of law", and it is to that standard and potential outcome that forensic accountants generally have to work.
3. Forensic accountants, also referred to as forensic auditors or investigative auditors, often have to give expert evidence at the eventual trial.
4. All of the larger accounting firms, as well as many medium-sized and boutique firms and various police and government agencies have specialist forensic accounting departments.
5. Within these groups, there may be further sub-specializations: some forensic accountants may, for example, just specialize in insurance claims, personal injury claims, fraud, anti-money-laundering, construction, or royalty audits.
6. Financial forensic engagements may fall into several categories. For example:
a) Economic damages calculations, whether suffered through tort or breach of contract;
b) Post-acquisition disputes such as earn outs or breaches of warranties;
c) Bankruptcy, insolvency, and reorganization;
d) Securities fraud;
e) Tax fraud;
f) Money laundering;
g) Business valuation; and
h) Computer forensics/e-discovery.
7. Forensic accountants often assist in professional negligence claims where they are assessing and commenting on the work of other professionals.
8. 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.
9. Engagements relating to criminal matters typically arise in the aftermath of fraud. They frequently involve the assessment of accounting systems and accounts presentation—in essence assessing if the numbers reflect reality.
10. Some forensic accountants specialize in forensic analytics which is the procurement and analysis of electronic data to reconstruct, detect, or otherwise support a claim of financial fraud.
11. The main steps in forensic analytics are:
a) Data collection.
b) Data preparation.
c) Data analysis.
d) Reporting. For example, forensic analytics may be used to review an employee's purchasing card activity to assess whether any of the purchases were diverted or divertible for personal use.
12. Forensic accountant.
a) Forensic accountants, investigative accountants or expert accountants may be involved in recovering proceeds of serious crime and in relation to confiscation proceedings concerning actual or assumed proceeds of crime or money laundering.
b) In the United Kingdom, relevant legislation is contained in the Proceeds of Crime Act 2002. Forensic accountants typically hold the following qualifications;
13. Large accounting firms often have a forensic accounting department.
14. Forensic accounting and fraud investigation methodologies are different than internal auditing.
15. Thus forensic accounting services and practice should be handled by forensic accounting experts, not by internal auditing experts.
16. Forensic accountants may appear on the crime scene a little later than fraud auditors, but their major contribution is in translating complex financial transactions and numerical data into terms that ordinary laypersons can understand.
17. That is necessary because if the fraud comes to trial, the jury will be made up of ordinary laypersons.
18. On the other hand, internal auditors move on checklists that may not surface the evidence that the jury or regulatory bodies look for.
19. The fieldwork may carry out legal risks if internal auditing checklists are employed instead asking to a forensic accountant and may result serious consultant malpractice risks.
20. Forensic accountants utilize an understanding of economic theories, business information, financial reporting systems, accounting and auditing standards and procedures, data management & electronic discovery, data analysis techniques for fraud detection, evidence gathering and investigative techniques, and litigation processes and procedures to perform their work.
21. 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.
Shared by: MKR
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