Forensic Accounting: Definition and Overview

forensic accounting defined

Alongside this variety of work forensic accountants have the satisfaction of helping to ensure justice and bring criminals to account. If you have keen analytical and problem-solving skills why not put those to use to investigate financial crime? As an ICAEW Chartered Accountant specialising in forensic accountancy you can become a detective of the finance world. The types of activities performed by these specialized accountants include investigating fraud, quantifying damages, valuing a company, or assessing tax bills. Typically, an accounting firm will be engaged by a client either looking to defend themselves, or one looking to prosecute someone.

This can be done by analyzing the company’s financial records, including accounts receivable, accounts payable, and inventory. Warren Buffett is quoted as saying that it is only when the tide goes out that you learn who has been swimming without their trunks. The credit crunch from 2008 launched a huge amount of forensic investigation into banks and financial institutions and thereafter related litigation. Furthermore, there is a regulatory backlash which again tends to involve forensic accountants in monitoring and supporting remediations.

Types of Forensic Accounting

On the other hand, an audit is a systematic and independent examination of an organization’s financial statements and records to ensure that they are accurate, reliable, and comply with relevant accounting standards. Sometimes, the lawyer or court must have someone who has special skills in accounting and investigation skills to examine and produce the report on the areas related to accounting. In general, Forensic Accountants are required to have knowledge and experience in accounting and investigation skills. Also, knowledge in those related industries is important to perform its work efficiently and effectively. Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018.

Forensic accountants may appear on the crime scene a little later than fraud auditors, but their major contribution is in translating complex financial transactions and numerical data into terms that ordinary laypersons can understand. That is necessary because if the fraud comes to trial, the jury will be made up of ordinary laypersons. On the other hand, internal auditors move on checklists that may not surface the evidence that the jury or regulatory bodies look for. The fieldwork may carry out legal risks if internal auditing checklists are employed instead asking to a forensic accountant and may result serious consultant malpractice risks. The significance of preparing reports and testifying in court for a forensic accountant is immense.

Career as a Forensic Accountant

The first step in a forensic accounting investigation is to gather all relevant information. This includes financial statements, tax returns, bank records, and any other documents that could provide information. The goal of this phase is for you to identify any irregularities that could indicate fraud or wrongdoing.

Forensic accountants use their attention to detail, interpersonal communication skills, and objectivity to identify discrepancies and determine the accuracy of those records. Understanding these records helps forensic accountants build a strong case for criminal or civil proceedings. If you’re a true-crime podcast junkie or horror mystery lover, chances are you’ve heard of forensic science — using science to investigate and solve crimes.

Communities by professional specialism

However, planning the investigation is likely to be similar to planning an audit or any other assurance engagement. The ICAEW Library can give you the right information from trustworthy, professional sources that aren’t freely available online. Forensic accountants are increasingly relying on and developing new uses for technology. As trading became more complex, through the Renaissance and then especially with the onset of the Industrial Revolution, so the need to record and ‘account’ for assets and liabilities became more important. It’s exposure to an incredible range of cases that keeps me interested in the field of accounting.

forensic accounting defined

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