Forensic Accounting

Keywords: Purpose and Importance, Auditors vs. Forensic Accounting, Role of Forensic Accountant, Accounting Assignment Writing

Introduction

Financial misconduct and fraud are a deceit in order to gain personal advantage. The unethical and criminal act is sometimes performed by the individuals in the company when financial gains are possible.

Ramesh (2013) stated that ‘Forensic accounting’ is concerned with the financial investigation through applying accounting analysis and audit techniques to prepare a suitable document for the legal proceeding. The forensic accounting is speciality area in accountancy profession and involves litigation aspect, audit and accounting. The forensic accounting utilises the auditing and accounting skills together to investigate the financial matters or fraud in a proactive manner.

The key purpose of the forensic accounting is to detect fraud or theft and highlight fraudulent activities along with preparing legal evidence by applying auditing and accounting principles.

It is estimated that in the US companies, there is a fraud of $600 billion is done every year. The financial fraud is global phenomena and the investigations are carried by the forensic accountant through identification and investigation of the financial irregularities. The motivation behind the investigation is to minimise and control the fraud as this could cost heavily to an organisation (Kass-Shraibman & Sampath, 2011).

Importance of Forensic Accounting

In recent times, accounting frauds have highlighted the need for forensic accounting. The practices of money laundering, as well as tax avoidance and evasion, have brought the forensic accounting into the spotlight. The collapse of the Enron and WorldCom has emphasised the need for forensic investigation and ranking it second to financial reporting. The investigation could be launched in any financial matter ranging from insurance fraud to law enforcement agencies investigating specific scenario (Carpenter, Durtschi, & Gaynor, 2008).

To improve the public image of company, forensic accounting has been one of the proposed initiatives for companies. The forensic accounting has very important role in risk reduction, investigation of the processes, and makes recommendations for senior management.

Forensic accounting is a collective and collaborative way to examine the financial misconduct with the mix of traditional accounting techniques, audit and system analysis. The financial crisis has raised the financial awareness and irregularity in the financial markets. The forensic accounting helps to analyses the financial material viable to make sensible and suitable investment decisions. This could highlight the quality of the investment decisions whether an investment is worthwhile (Kass-Shraibman & Sampath, 2011).

Benefits of Forensic Accounting

Pedneault, Silverstone, Rudewicz, & Sheetz (2012) explained the benefits of forensic accounting which include safeguard the assets and protect the interest of the company in changing and dynamic business environment. It deters the unethical and corrupt practices through accounting and audit techniques and mitigates the future losses. It involves both legal support for the stakeholders along with quantification of the loss for all the parties involved. The forensic accounting helps to prevent the fraud and protect the company from the scenario that could damage the company assets and maintain the future success of the business.

Skalak, Golden, Clayton, & Pill (2015) elaborated that the forensic accounting helps to detect the fraud in a proactive manner and minimise the losses the company could face from the unethical action. The trust and confidence from the forensic function can reassure the investors that internal controls are effective and there is less likelihood of the fraud occurrence. The objectivity of forensic analysis is more than the audit performed by internal auditors. Furthermore, these documents produced by internal auditor cannot be used for legal matters. The results of forensic analysis have legal advantage and acceptable to all stakeholders.

Auditors vs. Forensic Accounting

Crain, Hopwood, Pacini, & Young (2016) stated that auditors do not focus on the fraud and auditing focus on the fraud detection and internal controls. On the other hand, the forensic accounting takes a more advanced approach to the fraud investigation and fulfills the needs in terms of the audit of financial statements and legal outcomes. The Sarbanes-Oxley has improved the corporate governance but the answers to unethical practices in the organisation perform by individuals or group of individuals need a response to mitigate the loss and avoid such possible future scenarios.

Forensic accounting encompasses both the litigation aspect as well as investigation accounting. The key components are litigation, fraud investigation, accounting, and business information evaluation (Ramesh, 2013).

Role of Forensic Accountant

Forensic accountant conducts the analysis and interprets the financial statements to present the financial information that is comprehensible and have legal support. They forensic accountants can work in any field ranging from the public sector, banks or even private limited companies. The forensic accountant investigates the financial evidence, prepare a report and communicate the results along with the provision of legal assistance. Moreover, forensic accountant skills are valuable resource for the company and increase effectiveness of the financial contents (Pedneault, Rudewicz, Silverstone, & Sheetz, 2013).

Conclusion

The corrupt practices and fraud have raised the awareness about forensic accounting to identify and prevent fraud. The traditional role of the auditor was considered as reactive whereas the forensic accounting takes a more proactive approach to underline the fraud and rules to deter the fraud. Forensic accounting is the merger of accounting and forensic science to answer the problems relating to fraud and financial irregularities.  The unethical practices of the managers have bypassed the laws, regulations to commit the fraud and financial crime and thus the need of forensic accounting could not be emphasised less, and starting point to develop and secure the financial of the company.  Forensic accounting safeguards the company asset, provides the legal support and prevents the damage or fraud. At last, not least, forensic accounting enclosed solution for multiple matters and address the criminal and unethical financial conducts.

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