In the modern competitive business environment, forensic accounting plays a crucial role in the business organizations. Forensic Accounting can be considered as a branch of accounting which is frequently used in criminal investigations in the field of accountancy. In this article, the concept of Forensic Accounting in explained more in detail.
As stated in the Oxford Dictionary, forensic accounting is about the use of various skills to investigate fraudulent practices and to prepare the financial statements for the usage of legal actions. Forensic accounting explains the ways of using the accounting skills in order to investigate illegal and fraudulent accounting practices and to analyze the financial statements to take legal actions. Forensic accounting can also be referred to as financial forensics. Forensic means the appropriateness to take required legal actions. There are a specific kind of people who are known as forensic accountants or forensic auditors involved in finding evidences and providing an accounting analysis to present it at the court. At present in almost every accounting firm, irrespective of the size, are having specialized forensic accounting departments. These forensic accountants are specialized in various areas like insurance claims, fraud, royalty audits, personal injury claims and construction. The forensic accountants are accounting for crimes which can be classified as the crimes against property.
The engagements relating to forensic accounting can be classified to many categories as follows:
• Calculations related to damages in economy. For e.g. breach of contract
• Post-acquisition disputes likewise the breaches of warranties or earn-outs
• Due to insolvency, reorganization and bankruptcy
• Securities fraud and business valuation
• E-discovery or the computer forensics
In order to engage in Forensic accounting, various types of competencies are required such as investigative skills, professional accounting skills, analytical skills, and also knowledge regarding the information technology, statistics, etc. Forensic accountant plays an important role at the court in providing valid evidences to prove the cases. Although the role of a forensic accountant differs from case to case, four areas can be mainly pointed out to elaborate their service. He/she may,
- Build a foundation for the case and review all the documents at the stage of discovery in order to help in formulating the framework and to select the most important information.
- Conducting interviews to gather information or do researches to collect more details or evidences related to the case.
- With the use of the expertise knowledge and skills analyze the collected information with the supportive documents.
- Develop a report using all the information collected for the investigation with all the evidences.
Other than the cases related to business, the service of the forensic accountant is used to solve the personal problems like dissolution of marriage. Therefore, Forensic accounting is a useful area that can be used in solving problems.