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 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 accounting encompasses two areas:
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 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. Fraud auditors try to control a situation before something happens, whereas a forensic accountant may be hired after the fact. A forensic accountant is usually hired after a company suspects theft, fraud or embezzlement.
Forensic accountants are suspicious. They must be able to apply their accounting knowledge to legal issues. A forensic CPA will be asked to write expert reports, assist in depositions, testify as an expert witness, conduct fraud investigations and assist in civil and criminal investigations.