Forensic accountant
Encyclopedia
Forensic accountants are experienced auditors, accountant
s, and investigators of legal and financial documents that are hired to look into possible suspicions of fraud
ulent activity within a company; or are hired by a company who may just want to prevent fraudulent activities from occurring. They also provide services in areas such as accounting, antitrust
, damages, analysis, valuation, and general consulting. Forensic accountants have also been used in divorce
s, bankruptcy
, insurance claims, personal injury
claims, fraudulent claims, construction, royalty
audits, and tracking terrorism by investigating financial records. Many forensic accountants work closely with law enforcement personnel and lawyers during investigations and often appear as expert witnesses during trials.
has been used since the time of the ancient Egyptians when Pharaoh had scribes account for his gold and other assets. These scribes worked in Pharaoh’s courts and were charged with fraud prevention and detection. Their role stayed much the same until the turn of the 20th century. As an accountant they must have knowledge of the latest accounting standards and procedures, be proficient in many different Financial Reporting Systems being used, and be able to provide recommendations that will strengthen internal controls. They also need to have an understanding of the different monetary units used internationally due to the different types used in foreign accounts or companies. As an auditor they must perform regular financial audits to prevent possible situations that could lead to fraud. As an attorney they must know the current Federal and State laws and regulations, and should be able to approve or disapprove suspicions of fraud. They may also be called to be an expert witness in a court trial so they must be able to communicate well and at a level that is understandable by individuals without accounting knowledge.
As an investigator they must investigate and gather evidence to be presented in a court of law; be able to investigate complaints, allegations, and tips of suspected fraud; must be able to sort, analyze, and compare data in support of an investigation; and must have a working relationship with the investigating and prosecuting agencies involved.
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. The main steps in forensic analytics are (a) data collection, (b) data preparation, (c) data analysis, and (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. Forensic analytics might be used to review the invoicing activity for a vendor to identify fictitious vendors, and these techniques might also be used by a franchisor to detect fraudulent or erroneous sales reports by the franchisee.
When acting as an expert witness
in court proceedings in Federal Court
in the United States
a forensic accountant is required to give testimony which is based upon sufficient facts or data and is the product of reliable principles and methods, and he is required to have applied the principles and methods reliably to the facts of the case.
When acting as an expert witness
in court proceedings in the United Kingdom
a forensic accountant is obliged to give "objective, unbiased opinion on matters within his expertise".
In addition a good forensic accountant has a particular aptitude for this type of work. This includes an inquisitive mind, tenacity and attention to detail, excellent
communication skills both written and oral, an ability to deal with a large amount of documentary evidence whilst working to a tight deadline, a knowledge of relevant law
and experience of court procedures.
Importantly, a good forensic accountant will be able to look at the evidence before him from different standpoints so as to recognise different possible interpretations of
that evidence and the implications of those interpretations for the matter in hand. That involves not only objectivity but also skills derived from experience in the field.
In that way the forensic accountant can make his client aware of both the strengths and potential weaknesses in his case at an early stage. Further work can then be done as appropriate to address areas of weakness.
forensic accounting is the part of the inquiry about to find true reasons of the actual transaction.
(CFAPs),Certified Public Accountants (CPAs), Chartered Accountants (CAs), Certified Fraud Examiners (CFEs), Certified in Financial Forensics (CFFs), Certified Forensic Accountants (Cr.FAs), Investigative & Forensic Accountants (IFAs); however, some have other professional certifications.
Accountant
An accountant is a practitioner of accountancy or accounting , which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources.The Big Four auditors are the largest...
s, and investigators of legal and financial documents that are hired to look into possible suspicions of fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
ulent activity within a company; or are hired by a company who may just want to prevent fraudulent activities from occurring. They also provide services in areas such as accounting, antitrust
Antitrust
The United States antitrust law is a body of laws that prohibits anti-competitive behavior and unfair business practices. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both,...
, damages, analysis, valuation, and general consulting. Forensic accountants have also been used in divorce
Divorce
Divorce is the final termination of a marital union, canceling the legal duties and responsibilities of marriage and dissolving the bonds of matrimony between the parties...
s, bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
, insurance claims, personal injury
Personal injury
Personal injury is a legal term for an injury to the body, mind or emotions, as opposed to an injury to property. The term is most commonly used to refer to a type of tort lawsuit alleging that the plaintiff's injury has been caused by the negligence of another, but also arises in defamation...
claims, fraudulent claims, construction, royalty
Royalties
Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...
audits, and tracking terrorism by investigating financial records. Many forensic accountants work closely with law enforcement personnel and lawyers during investigations and often appear as expert witnesses during trials.
Tasks Performed
Forensic accountingForensic accounting
Forensic accounting is the specialty practice area of accountancy that describes engagements that result from actual or anticipated disputes or litigation. "Forensic" means "suitable for use in a court of law", and it is to that standard and potential outcome that forensic accountants generally...
has been used since the time of the ancient Egyptians when Pharaoh had scribes account for his gold and other assets. These scribes worked in Pharaoh’s courts and were charged with fraud prevention and detection. Their role stayed much the same until the turn of the 20th century. As an accountant they must have knowledge of the latest accounting standards and procedures, be proficient in many different Financial Reporting Systems being used, and be able to provide recommendations that will strengthen internal controls. They also need to have an understanding of the different monetary units used internationally due to the different types used in foreign accounts or companies. As an auditor they must perform regular financial audits to prevent possible situations that could lead to fraud. As an attorney they must know the current Federal and State laws and regulations, and should be able to approve or disapprove suspicions of fraud. They may also be called to be an expert witness in a court trial so they must be able to communicate well and at a level that is understandable by individuals without accounting knowledge.
As an investigator they must investigate and gather evidence to be presented in a court of law; be able to investigate complaints, allegations, and tips of suspected fraud; must be able to sort, analyze, and compare data in support of an investigation; and must have a working relationship with the investigating and prosecuting agencies involved.
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. The main steps in forensic analytics are (a) data collection, (b) data preparation, (c) data analysis, and (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. Forensic analytics might be used to review the invoicing activity for a vendor to identify fictitious vendors, and these techniques might also be used by a franchisor to detect fraudulent or erroneous sales reports by the franchisee.
When acting as an expert witness
Expert witness
An expert witness, professional witness or judicial expert is a witness, who by virtue of education, training, skill, or experience, is believed to have expertise and specialised knowledge in a particular subject beyond that of the average person, sufficient that others may officially and legally...
in court proceedings in Federal Court
Federal court
Federal court may refer to a court of the national government in a country that has a federal system of government. Examples include:* United States federal courts** A particular federal court, such as the United States district courts....
in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
a forensic accountant is required to give testimony which is based upon sufficient facts or data and is the product of reliable principles and methods, and he is required to have applied the principles and methods reliably to the facts of the case.
When acting as an expert witness
Expert witness
An expert witness, professional witness or judicial expert is a witness, who by virtue of education, training, skill, or experience, is believed to have expertise and specialised knowledge in a particular subject beyond that of the average person, sufficient that others may officially and legally...
in court proceedings in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
a forensic accountant is obliged to give "objective, unbiased opinion on matters within his expertise".
Personal qualities and skills
A good forensic accountant is much more than just a good accountant. Any good accountant will certainly be competent in accountancy matters, will produce accurate information compiled under generally accepted accounting principles, will act with integrity, and will respect confidentiality.In addition a good forensic accountant has a particular aptitude for this type of work. This includes an inquisitive mind, tenacity and attention to detail, excellent
communication skills both written and oral, an ability to deal with a large amount of documentary evidence whilst working to a tight deadline, a knowledge of relevant law
and experience of court procedures.
Importantly, a good forensic accountant will be able to look at the evidence before him from different standpoints so as to recognise different possible interpretations of
that evidence and the implications of those interpretations for the matter in hand. That involves not only objectivity but also skills derived from experience in the field.
In that way the forensic accountant can make his client aware of both the strengths and potential weaknesses in his case at an early stage. Further work can then be done as appropriate to address areas of weakness.
forensic accounting is the part of the inquiry about to find true reasons of the actual transaction.
Information Needs
Forensic accountants need to have a great deal of access to information regarding the company they are investigating or assisting. The information will determine how much a person actually makes, the worth of a business, if there has been fraudulent activity, who committed the fraud, everyone involved, how much was taken from the company, where the money went, and how much can be recovered. Some of the obvious information needs consist of the financial statements, bank statements, credit statements, and computers. Some of the less obvious information needs consist of address books, emails, phone numbers, spreadsheets, electronic memos, and so forth.Financial Statements
Financial statements are very important to forensic accountants because they must analyze the information given on the statements and compare that information to other sources of information. The balance sheet, income statement, statement of owner’s equity, and statement of cash flows are the four most important financial statements that forensic accountants look at; however, they also look at business plans and disclosures in footnotes. The balance sheet shows the financial position of a company at a given point in time. It lists the company’s assets, liabilities, and owner’s equity while showing the resources of the company. The income statement shows the results of the company’s operations during a period of time, revenues minus expenses for a given time period ending at a specified date. The statement of owner’s equity, also known as the statement of retained earnings or the equity statement, reconciles the beginning and ending retained earnings for the period, using information such as net income from the other financial statements. The statement of cash flows lists the sources and uses of cash and divides them into operating, investing, and financing activities. It evaluates the company’s ability to pay its bills while indicating if there is enough cash for routine operations. Some other financial documents that need to be examined include the following: general journal, general ledger, sales journal, purchases journal, cash receipts journal, and cash disbursements journal. Even though forensic accountants need to analyze and compare financial statements most cases of fraudulent activity will not be in plain sight. Most fraudulent activity will be hidden and manipulated to the point that forensic accountants must dig deep into the company.Bank Statements
Bank statements are also needed in order to investigate a company. The owner’s personal bank statements are needed as well as the company’s bank statements. If the company is the one who wanted the investigation to be conducted then they most likely suspect an employee. Therefore, bank statements would be needed from the individual being investigated. They will show how much cash is coming into and out of the company. They will also show where the money is going and where it is coming from, who are the clients, and if any money has been transferred to foreign accountants. Once again, if the owner of the company was performing fraudulent activities then the discrepancies would not be in plain sight; the owner would most likely have foreign accountants with no trace to them. If evidence of a foreign account can be found then there may also be evidence on what the individual has been purchasing with that account, when it was opened, how much has been deposited, and if there is there is a valid reason for the individual to have a foreign account open. If the company is based overseas then that alone is reason enough to have a foreign account. However, if it is an individual’s personal account and they put the account under a different name (mother’s maiden name who died 10 years ago) then there is enough reason to believe the individual is trying to hide something.Credit Statements
Credit statements can show evidence that bank statements may not, but once again, the evidence will not be in plain sight. Forensic accountants must look to see if there were any big purchases that don’t match the individual’s income, for instance, a new vehicle. Credit statements may also reveal that the individual has been taking several exotic vacations over the past few years that are outside of their means.Education
A person in this field should have at least 2 years experience in auditing or accounting and a Bachelor’s degree in Accounting or a related field. Most forensic accountants are Certified Forensic Accounting ProfessionalCertified Forensic Accounting Professional
Certified Forensic Accounting Professional is a person who has undergone training to become an expert in the field of forensic accounting, forensic auditing, litigation support and investigative accounting....
(CFAPs),Certified Public Accountants (CPAs), Chartered Accountants (CAs), Certified Fraud Examiners (CFEs), Certified in Financial Forensics (CFFs), Certified Forensic Accountants (Cr.FAs), Investigative & Forensic Accountants (IFAs); however, some have other professional certifications.