What Is Forensic Accounting?
Forensic accounting investigations are a product of the forensic accounting process which is the review of accounting information that will typically involve the suspicion of financial irregularities that may or may not have arisen.
What Forensic Accounting Is Not?
Forensic Accounting although a unique skillset; it is not separated from ‘accounting’ by separate qualification. You can be a forensic accountant by qualifying as an accountant. You can also become a forensic accountant without necessarily qualifying as a recognized accountant. It is however common that you might be a Certified Fraud Examiner for example instead of for instance being a qualified Chartered Accountant. A forensic accountant who appears as an expert witness at Court will typically be qualified with a recognized professional body. However, the key distinction between an accountant who is undertaking accounts preparation compliance or providing tax advice, is not necessarily the different accounting involved per se but the purpose for which the accounting work is being undertaken.
Purpose of The Accounting
The purpose of forensic accounting is that the accountant’s role is to address concerns about transactions entered into and to examine the effect of the same.
Why Use a Forensic Accountant?
You would typically look to use the services of a forensic accountant if you are seeking to investigate financial suspicions, misconduct, and fraud. However, as discussed later there might well be no involvement of any misconduct in many instances and forensic accountancy services could still be very useful.
A forensic accountant will often be an expert at undertaking financial investigations, and examining financial records and financial data.
Why Not Use Your Accountant?
There is no reason not to use your reporting accountant to do your desired forensic accounting investigation if that person has the skills and expertise to do the job. However, an accountant whose expertise and experience is in the field of compliance and provision of tax advice will often not have the time and may not have the experience to undertake some of the larger forensic accounting investigations.
Is Financial Misconduct Inevitable?
It is by no means inevitable that there will be financial misconduct or irregularities discovered after using the services of a forensic accountant. The suspicion that there are financial irregularities, financial misconduct or even financial fraud does not mean as a matter of fact that there is the existence of the same. You employ the services of a forensic accountant to see if there ‘might’ be financial irregularities, financial misconduct or financial fraud. If you already know as a matter of fact (not suspicion) that there have been financial irregularities, financial misconduct or financial fraud you might well not even necessarily need to deploy the services of a forensic accountant to investigate.
Insolvency
Forensic accounting has a huge role to play in insolvency investigations. Companies that enter liquidation are typically fertile ground for investigation, to see why the company has suffered such a demise. The forensic side to insolvency is often undertaken by an Insolvency Practitioner themselves for the benefit of creditors, often by bringing insolvency claims.
The Forensic Accounting Investigations Process
Forensic accounting procedures prove or disprove theft by examining detailed transactions, unlike higher-level financial audits, which merely address statement accuracy. As a result, forensic accounting is more granular and targeted than audits. If you hire forensic accounting services, you should expect the following three steps:
Step 1: Investigation
Your forensic accountant will investigate alleged theft or fraud by examining the company’s financial records and interviewing staff. With enough effort and research, even the most complex fraud can be detected by unwinding transactions and paper trails.
Step 2: Reporting
Forensic accountants will prepare a report with definitive evidence of fraud identified, cataloged, and explained. This report is provided to the appropriate manager or business owner along with a consultation to explain the situation.
Step 3: Recover and testimony
The final forensic accounting procedure is to support you in cash recovery, including confronting the employee, negotiating a repayment arrangement, or pressing criminal charges. In the event of a criminal indictment, the forensic accountant will be an expert witness to provide testimony on your behalf.
Conclusion
Forensic accountants can be thought of as being financial detectives who go through every single transaction that is recorded to try and find any illegal or fraudulent activity. The procedure has a wide range of uses, ranging from matrimonial disputes to commercial disputes and shareholder disputes.
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