What is Forensic Accounting?
Very few people are aware of the term “forensic accounting”. It is the application of accounting skills to supply quantitative financial information about matters before the courts. Forensic accounting is nothing but the practice of utilizing accounting and auditing with investigating skills to conduct the examination of a company’s financial statements in legal matters.
How does it function?
The three main pillars of Financial Accounting is consists of litigation support, investigation, dispute resolution. Litigation support means the factual or accurate presentation of financial matters related to present or pending court cases. In this situation, the forensic accounting professionals measure the damages done by the parties involved in the legal dispute before the cases brought to the court. When criminal offenses occurred investigation takes place. Criminal offenses include falsification of financial statements, securities fraud, internal theft, bribery, insurance fraud etc.
When these disputes brought to the court, the forensic accountants are deputed as the expert witness. They prepare necessary evidence. For this reason, forensic accountants are known as forensic auditors or investigative auditors. Investigation and interpretation of white-collar crime are specialized work of forensic accountants. The cases like securities fraud, contract disputes and other illegal business activities such as embezzlement and bribery are the main white collar crime that involved them investigating all the time.
What knowledge do they need for their work?
Knowledge of accounting and finance along with company law and commercial law is the basic requirement in forensic accounting. Beside this forensic accountants must have the knowledge about updated business information, government legislation, financial reporting systems, litigation processes and procedures to carry out their work. Along with this required knowledge, they also need to develop two essential skill first one investigating skills and second one evidence gathering skills.
Benefits of Forensic Accounting
- Forensic accounting helps to solve financial crimes: forensic accounting helps in solving financial crimes such as bribery within government offices, fraud and money laundering within business groups. This not only helps with gathering evidence for the crime but also help in detecting and identifying the crime.
- Helps business houses with their finances: business houses can appoint forensic accountants to check irregularity among their employees and business clients they are working with. A company can use forensic accountants to check an employee’s financial deal if they feel any doubt about his purchases.
- Forensic accounts can help monitoring work of professionals: by using forensic accounting work of professionals including accountants themselves can be assessed properly. If someone made any critical error it can be detected by forensic accounting and the person can be accused on the basis of professional negligence.
Forensic accountants have played an important role in detecting accounting scandals and crimes caused by any individuals, companies. When forensic accountants conduct audits, they are looking for signs of fraud and by using their investigation skills they easily find the illegal financial transactions.