Forensic accounting is the specialty accounting practice that focuses on collating, investigating, analyzing and presenting data related to litigation that is either ongoing or anticipated. Forensic means the application of scientific processes in the investigation of records, analysis of complex data and preparation of comprehensive reports for use as evidentiary material to support legal proceedings. These forensic reports should be understandable to both experts and lay persons, but it is equally important to comply with generally accepted standards of suitability for court presentations.
Scope of Functions
Aside from accounting expertise, forensic accountants should be knowledgeable about legal concepts, procedures and ethics. While all accountants deal with sensitive and confidential information, those who are involved in forensic research for ongoing or pending litigation should be aware of the highly sensitive nature of the information being processed.
Forensic accountants engage in thorough investigations to determine if there is verifiable evidence of employee theft, securities fraud or insurance fraud. In civil cases such as divorce, a forensic accountant may be hired to look for concealed assets. Forensic investigations are typically initiated after the fact, which means the process is initiated after reasonable suspicion that theft, fraud or criminal activity such as money laundering has occurred.
These accountants provide litigation support by collating, analyzing and preparing reports and presentation materials that can pass the stringent standards of courtroom presentations. Forensic accountants may be summoned as expert witnesses for either party involved in the legal proceedings.
Academic and Career Requirements
Forensic accountancy is not an entry-level position. It requires completion of a bachelor’s degree in business, finance or accountancy although employers may substitute years of experience for the academic requirement. That said, the preferred academic credential is a master’s degree in business, criminology or related discipline. Aspiring forensic accountants must also earn the certified public accountant designation by passing the required examinations and fulfilling all the requirements.
Earning the Certified Fraud Examiner credential overseen by the internationally recognized Association of Certified Fraud Examiners will help beef up your resume as you progress through your career track. The CFE is not a mandatory requirement, but forensic accountants may find that this credential opens new opportunities. The CFE designation demonstrates expertise in data analysis, fraud investigations and trends in fraudulent schemes.
Role of Forensic Accountants
Forensic accounting practices played a major role in the downfall of Enron, a Texas-based energy company, found to have used creative accounting strategies that contravened guidelines set in the Generally Accepted Accounting Principles. Enron filed for bankruptcy after forensic accountants found that the company had been hiding major losses in failed projects to artificially inflate its financial position and business valuation. Arthur Andersen, the company’s auditors, were blamed for failure to audit Enron’s records appropriately and eventually filed for dissolution also.
Forensic accountants also found enough evidence that Sunbeam, a large manufacturer of small appliances, was engaged in an elaborate scheme to increase its valuation in anticipation of a sale. These practices also apply to civil cases. Heather Mills, Paul McCartney’s ex wife, used the services of forensic accountants to uncover the extent of his fortune. Mills hoped to boost her divorce settlement by uncovering hidden assets.
Fraudulent schemes will continue to plague businesses and non-profit organizations as technology provides more opportunities to manage accounting records. The outlook for accountants and auditors as a group is expected to grow by 11 percent, representing above-average growth in the 10-year period ending in 2024. Forensic accounting will play a major role in protecting investors, consumers and the general public from nefarious schemes.