Forensic accounting definition
/What is Forensic Accounting?
Forensic accounting is the examination of financial records that will lead to or result from litigation. The results of a forensic accounting investigation can be used as evidence in court, and so are usually heavily documented.
Common Responsibilities in Forensic Accounting
Common responsibilities in forensic accounting include the following:
Fraud detection and prevention. It involves identifying financial discrepancies, such as embezzlement, money laundering, or asset misappropriation.
Litigation support. It involves assisting legal teams in preparing for cases involving financial disputes, providing expert witness testimony in court regarding financial matters, and analyzing financial data to establish damages or loss amounts.
Investigative accounting. It involves conducting detailed examinations of financial statements and documents, and tracking cash flow and tracing assets to uncover hidden funds or transactions.
Valuation services. It involves assessing the value of businesses, properties, or intellectual property in disputes, as well as providing financial insight during mergers, acquisitions, or divorce proceedings.
Forensic data analysis. It involves the use of data analytics tools to detect patterns or anomalies in financial data.
Insolvency investigations. It involves the investigation of the causes of financial distress in businesses.
Insurance claim reviews. It involves assessing the validity of insurance claims, particularly in cases of suspected fraud, and calculating losses for claim settlements.
Where Can Forensic Accounting Be Used?
There are a number of areas in which a person can use forensic accounting skills, including the following:
Calculation of economic damages. This calculation is needed when a plaintiff needs to justify an amount for which it seeks redress from a defendant.
Calculation of the value of a business
Detection of fraud. A business may request this service in order to prove a case against an employee or an outsider who has stolen assets from the firm.
Insolvency legal support
Investigation of computerized accounting records (known as forensic analytics). This activity requires the accountant to review large data sets in order to spot anomalies, typically as part of a fraud investigation.
Money laundering investigations
Professional negligence claims
Reconstruction of accounting records (usually for insurance claims)
Royalty audits
Related AccountingTools Courses
Forensic Accountant Requirements
A person engaged in forensic accounting should have a considerable knowledge of accounting and auditing, which is used to dig through or reconstruct the accounting records of an organization. Special skills required for a forensic accountant include the following:
Ability to speak in court as an expert witness
Knowledge of all types of asset misappropriation fraud
Knowledge of rules of evidence
Knowledge of auditing techniques, both for corporate and government institutions
Ability to search through accounting records
Certifications are available for forensic accountants. These certifications are typically in addition to the CPA certification.
Larger auditing firms usually employ forensic accountants within special forensic accounting business groups, as do insurance companies, banks, and government agencies. These individuals may be dispatched on projects worldwide. Given their travel arrangements, these accountants are more similar to consultants than auditors, who are less likely to travel on a regular basis.
Terms Similar to Forensic Accounting
A forensic accountant is also known as an investigative auditor.