Forensic Accounting is a special practice in the accounting industry that focuses on investigating a business in the event that any criminal charges were made against it. Forensic actually means that it is useful in the court of law. The accountings that specialize in forensic accounting is often referred to as forensic auditors or investigative auditors. It happens very often that a forensic must provide the evidence at a trial. Most of the large and medium-sized accounting firms to have a staff of forensic accountants. In addition, the police and the government should have their own department of forensic accountings which should investigate any sort of disputes or litigation.
Examples of events that are investigated:
- Economic damages from breach of contract.
- Post-acquisition dispute that rise due to the breaches of warranties.
- Bankruptcy, insolvency or reorganization of th business.
- Fraud committed with securities.
- Valuation of the business.
- Forensic investigation on the business’ computers.
Forensic accountants usually assist in professional negligence claims which require them to assess and comment on the work of other professionals. They also deal with marital and family law to analyze the lifestyle of both partners in order to calculate spousal support, child support and equitable distribution.
When a forensic accountant is assigned to a criminal case, it is typically after fraud has been committed. They will assess all of the accounting records, statements and accounts. This process is done to make sure that all of the business records are coinciding with one another and if they do not, identify the inconsistencies.
Some forensic accountings may specialize in forensic analytics which is to procure and analyze the electronic data to reconstruct, detect or support a claim of fraud. The main steps is forensic analytics are:
- Data collection.
- Data preparation.
- Data analysis.