What is forensic accounting?

Definition

Forensic accounting is about investigating financial fraud/crime. It involves detailed understanding of the business processes, operations, working dynamics, background checks, and many more things to investigate financial crimes, and scams.

Detailed understanding of forensic accounting

Forensic accounting requires skills for the use of accounting, auditing, interpretation, investigation, rational reasoning, and detailed mindset. These accountants are hired to investigate fraud, scam, financial crime and present their findings to the court of law (mostly). The evidence and proofs collected by forensic accountants help in legal proceedings and other objective pre-defined.

These accountants are professionally trained and competent resources and are given the responsibility to analyze business beyond numbers. They are specially trained to analyze and investigate in the following areas,

  1. Asset recovery in case of fraud.
  2. Identification of assets.
  3. Funds tracing
  4. Due diligence reviews
  5. Dispute resolutions as an alternative way of settlement (an additional skill)

Objectives of forensic accounting

Following are some of the objectives forensic accounting helps to achieve.

Support for insurance claim

In the past, there have been various fake claims for insurance. These fake claims resulted in a loss for the insurance companies. Hence, there has been more demand for the services of a forensic auditor.

In insurance industry, forensic accountants are given a task to assess accuracy of the claim. To perform their duty, they may be required to visit sites, collect evidence, interview staff, and conclude if an insurance claim is fake/genuine.

Evidence for fraud/embezzlement

Companies often face a situation where internal people are involved in fraud/embezzlement. However, it’s difficult to identify who is involved and their proportion of fraud activity. Forensic auditors can be an excellent resource to investigate and allocate responsibility for fraud in such a situation. However, they must be given authority to check the record, investigate, and question anyone in the company.

Support for the criminal investigation

The services of a forensic accountant can be used in a civil and criminal investigation as well. These investigations may include finding the intent of financial crime, factors behind a crime, amount exposed to fraud, theft of financial resources, and any other support required to complete a crime-related investigation.

Conclusion on forensic accounting

Forensic accounting helps investigate financial record and business operations. It’s about collecting evidence and allocating responsibility for the fraud/embezzlement.

Forensic accountants are hired to recover assets, fund tracing, the performance of due diligence, and dispute resolutions etc.

These accountants need to be competent in different areas including financial accounting, auditing, interpretation skills, analytical skills, drafting skills, professional attitude, and professional behaviour etc.

Further on, cash flow importance.

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