An accountant does the systematic recording, reporting, and analysis of financial transactions of a business. They are required to follow a set of rules and regulations approved by the government authority while accounting financial transactions of all legal entities.
Different types of accountants include auditors, forensic accountants, public accountants, tax professionals, financial advisors and consultants.
The word forensic means ‘suitable for use in a court of law’. Forensic accounting is a special area of practice in accountancy where accounting, auditing, and investigative skills are used to assist the court in legal matters.
As complexity in businesses are increasing, business related financial investigations are also in an increase. Forensic accountants are asked to assist in investigation of financial and business related issues.
Forensic accountants are also known as forensic auditors or investigative auditors. They investigate white-collar crimes including issues like securities fraud, embezzlement and bankruptcies. Often they will have to give expert evidence in an eventual trial. All of the larger accounting firms, as well as many medium-sized firms, have specialist forensic accounting departments.
Forensic accounting provides an accounting analysis that is suitable to courts. It will form the basis for discussion, debate and ultimately dispute resolution in courts. Forensic accountants combine their knowledge of accounting and finance with law and investigative techniques to determine whether an activity is illegal.
Forensic accounting encompasses both litigation support and investigative accounting. Litigation support provides accounting assistance in matters involving existing or pending litigation. It also deals with issues related to extend of economic damages. Example: calculating the economic loss due to a breach of contract. Investigative accounting is associated with investigations of criminal matters. Example: investigation of employee theft. Other examples include securities fraud (including falsification of financial statements), and insurance fraud. Investigation of an action is to determine if criminal acts such as securities fraud, identity theft, and insurance fraud have occurred. A forensic accountant may recommend actions that can minimize future risk of loss. Forensic accountants can also conduct investigation in civil matters. Example: Search for hidden assets in divorce cases are mostly conducted by forensic accountants.
A forensic accountant’s duty is to assist the court by conducting investigation. A decision whether fraud has occurred or not is always made by the courts. Forensic accountants analyze, interpret, summarize and present complex business and financial issues in a simple manner that is properly understandable and supported by evidence. They review the factual situations and provide suggestions for possible courses of action that can be taken. They also provide assistance with protection and recovery of assets by way of civil action or criminal prosecution. Forensic accountants assist to obtain necessary documents, and review it to support or refute a claim. They also assist with examination in court, including formulation of questions to be asked regarding the financial evidence. They attend examination of witnesses at court and review the testimony of the witnesses. Opposite expert’s damages report is also reviewed thoroughly by them. Forensic accountants also help in negotiations and settlement of disputes.
Forensic accountants can engage in private practice. They are also employed by insurance companies, banks, police forces, government agencies and other organizations.