What is a Forensic Accountant?
Forensic Accounting is the specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation.
"Forensic" means suitable for use in Court, and it is to that standard and potential outcome that forensic accountants generally have to work. Forensic accountants often have to give expert evidence at the eventual trial. Forensic accountants not only utilize their accounting and auditing skills, but also use their investigative skills to determine what events actually took place in a financial setting.
Engagements relating to civil disputes may fall into several categories: Calculating and quantifying losses and economic damages, whether suffered through tort or breach of contract. Disagreements relating to company acquisitions, perhaps earn outs or breaches of warranties. Business valuation Forensic accountants often assist in professional negligence claims where they are assessing and commenting on the work of other professionals. Engagements relating to criminal matters typically arise in the aftermath of fraud. They frequently involve the assessment of accounting systems and accounts presentation – in essence assessing if the numbers reflect reality.
Forensic accountants may be involved in recovering proceeds of crime and in relation to confiscation proceedings concerning actual or assumed proceeds of crime or money laundering. As Justin Pope states from the Associated Press, "Forensic Accountants inhabit a cloak and dagger corner of the accounting world. Their job: respond at a moment’s notice when a client spots trouble – anything from procurement fraud to a top executive cooking the books to industrial espionage
" D. Larry Crumbly, editor of the "Journal of Forensic Accounting" offers a great analogy to explain forensic accountants. Crumbly states, "You have an external auditor – that’s like a guard dog. Maybe a bulldog," he said. "An internal auditor is a seeing eye dog. A forensic accountant is a bloodhound." Forensic accounting encompasses two areas: Litigation support Litigation represents the factual presentation of economic issues related to existing or pending litigation. In this capacity, the forensic accountant quantifies damages sustained by parties involved in legal disputes and can assist in resolving disputes before they reach the courtroom. If a dispute reaches the courtroom, the forensic accountant may testify as an expert witness. Knowledge of the courtroom sets the forensic accountant apart from a typical accountant.
Investigation Investigation is the act of determining whether criminal matters such as employee theft, securities fraud (including falsification of financial statements), identity theft, or insurance fraud have occurred. Investigation may also occur in civil matters. A forensic accountant may be hired to search for hidden assets in a divorce case. While forensic accounting and fraud auditing are related, fraud auditing is more anticipatory.