An Overview of Forensic Accounting

The popularity of forensic accounting and the demand for forensic accountants has increased considerably in the past few years. This is due, in part, to the increase in corrupt business practices and crimes such as financial fraud. "A nationwide study conducted by Kessler International showed that 39 percent of organizations have considered the need for a forensic accountant" (Study Revealed that Forensic Accountants Needed) and U.S. News & World Report lists forensic accounting in its "20 Hot Job Tracks" of the future (U.S. News & World Report).

Forensic accounting is a form of investigative accounting and auditing that provides information to police and litigators on a variety of business crimes. It "provides an accounting analysis that is suitable to the court which will form the basis for discussion, debate and ultimately dispute resolution" (Forensic Accounting Demystified). Forensic accountants provide several services that help detect and report fraudulent financial activity. These services can be broken down into two distinct areas: investigative accounting and witness testimony.

Investigative Accounting

Forensic accountants provide a variety of investigative accounting services. Investigative services include, but are not limited to, fraud detection, investigation into accounting violations, theft audits, records tampering investigation, and exposing tax evasion.

Fraud detection provides analysis of debit and credit information to determine whether fraud is currently being or has been committed. This includes tracking and examining transactions for suspect activity. The forensic accountant will often be required to reconstruct historical transactions in order to detect fraud.

Investigation into accounting violations is performed in order to determine whether an organization is in compliance with all laws, rules, and regulations. Forensic accountants inspect financial statements, company policies, and company procedures to ensure the organization is following rules associated with: federal, state, and local laws; Securities and Exchange Commission (SEC) regulations; Generally Accepted Accounting Principles (GAAP); Generally Accepted Auditing Standards (GAAS); rules enacted through the Sarbanes-Oxley Act of 2002 (SOX); and other laws, rules, and regulations applicable to specific company operations.

Theft audits include research into business practices and financial records that may indicate theft is occurring or has occurred within an organization. Theft within a company can range from embezzlement, to stealing of company merchandise, to submission of inflated expenses for reimbursement. Company theft can occur in countless forms. Forensic accountants may also arrange surveillance in order to detect or prevent theft.

Investigation into records tampering is used to determine whether various company records have been manipulated in some fashion. Records reviewed may include financial records, invoices, deposits, and loans. Additional records that may be manipulated depend on the type of business conducted by the company.

Exposing tax evasion involves investigation of company financial records to determine whether income reported is accurate. In addition, the forensic accountant will look for off-the-book income and other forms of hidden income.

Witness Testimony

Forensic accountants also provide legal consultation for pending litigation and expert witness testimony during existing litigation. Legal proceedings regarding business crimes often require the testimony of an independent and credible authority. The forensic accountant must be able to present the appropriate evidence in an understandable manner, as well as calculate and introduce proof of damages associated with the case.

Conclusion

Forensic accounting is a fascinating field. It requires patience, attention to detail, excellent analytical skills, and the ability to reconstruct financial information. As a growing field, forensic accounting is a good choice for accountants with outstanding research skills who wish to help reduce instances of business fraud and abuse.

Melissa Bushman has published additional articles at Associated Content. Please click her name at the top of this article to view her other work.

References

"Forensic Accounting Demystified." Forensic Accounting website. URL: http://www.forensicaccounting.com/one.htm#start "Study Revealed that Forensic Accountants Needed as Economy Worsens." Kessler International website. URL: http://www.investigation.com/press/press17.htm

"20 Hot Job Tracks." U.S. News & World Report website. URL: http://www.usnews.com/usnews/biztech/articles/981026/archive_002900.htm