forensic accounting

1. ARTICLE ON FORENSIC ACCOUNTING AND AUDITING
Accounting and auditing are two incredibly critical aspects of running a corporation. They walk
hand in hand and are unable to function without the other. However, there is a common
misperception that the two names are interchangeable and that they refer to the same item. This
could hardly be more untrue.
FORENSIC ACCOUNTING
The investigation of fraud and misrepresentation is known as forensic accounting. Financial
data is thoroughly examined by forensic accountants. They keep meticulous records of the
inquiry and submit their findings to a court of law. Often, forensic accountants testify about
the accuracy of their findings.
To discover fraudulent acts, forensic accounting employs scientific tools and accounting
concepts. Corporate fraud has expanded dramatically as a result of technology advancements,
necessitating the hiring of forensic accountants.
Forensic processes cannot be carried out by a single individual; they must be carried out by an
organised team of professionals, including CPAs and forensic accountants.
The following are the responsibilities of the team:
❖ The forensic team gathers information and proof about concealed assets.

2. ❖ Associated parties and workers are interviewed by forensic accountants.
❖ They then double-check the information they've gathered.
❖ This information is thoroughly examined.
❖ The findings are compiled into reports.
❖ The evidence is organised into exhibits, which will be presented in court.
❖ Occasionally, forensic experts are called to testify in court to defend the accuracy of reports.
TYPES OF FELONIES INVESTIGATED BY FORENSIC ACCOUNTING
The following are the various types of felonies or misrepresentations investigated by forensic
accounting:
1. Business Fraud
Asset identification, asset recovery, due diligence checks, tracing misappropriation, forensic
intelligence, and suspect interviews are all part of a business investigation.
Forensic accountants plan intelligence tactics and track down criminals. These inquiries
necessitate a thorough examination of the papers.
2. Tax Fraud
Tax evasion is caught by forensic accountants. Businesses and individuals frequently fabricate
income and other financial data in order to decrease their tax liabilities.
3. Securities Fraud
The most common white-collar crime is misrepresentation of investments, commodities, and
stocks. Felonies include late-night trading, pump-and-dump schemes, pyramid schemes, and
Ponzi schemes.
4. Asset Misappropriation or Hidden Assets
Individuals and businesses frequently conceal assets from tax officials. Asset misappropriation,
such as property theft, embezzlement, and payroll fraud, is detected by forensic accountants.
5. Partnership and Shareholding Dispute
Conflicts involving salary and advantages obtained by shareholders are also investigated by
accountants or associates. The inquiry entails a thorough examination of accounting and
financial data in order to quantify the difficulties raised by the conflict.

3. 6. Insurance Claims
In car accidents and medical malpractice trials, forensic accountants calculate economic
damages. They go into insurance plans, coverage difficulties, claim settlements, and
prospective loss calculations. They examine property damages, business losses, employee
fidelity claims, and other litigation on behalf of insurance companies and policyholders.
7. Economic Losses and Bankruptcy
Breach of contract, construction claims, trademark infringements, patent infringements,
product liability claims, and non-compete agreement breaches are all common business losses.
Forensic accountants look at the terms and conditions of the events that led up to the
disagreement. They calculate the losses. Accountants also assist in the recovery of assets in
bankruptcy situations.
8. Money Laundering
Money laundering tactics and concealed bank accounts are two examples of illegal money
sources identified by forensic accountants.
9. Marital and Family Disputes
Accountants analyse financial compensation for divorces, property disputes, and family issues
after measuring damages. They calculate alimony and child support payments. Accountants
handle property allocation in family and property disputes.
FORENSIC ACCOUNTING TECHNIQUES
To distinguish between a mistake and an intentional fraud, Benford’s law (a mathematical
technique) is utilised. Outliers in records are also open to further analysis using the Relative
Size Factor (RSF) approach.
Data-mining tools sift through massive amounts of data in search of new, unexpected, or
implicit information or patterns. For data extraction and financial analysis, forensic accountants
use a variety of computerised tools.
ISSUES
❖ The following are some of the difficulties that forensic accountants face:
❖ Forensic processes necessitate a high level of technical and financial knowledge.

4. ❖ These investigations have the potential to reveal confidential information, which might
harm a suspect's reputation.
❖ Even the mere suggestion of a felony generates unwelcome negative publicity.
❖ Forensic accounting can be a costly process depending on the length of the investigation.
❖ Employees are sceptical even after suspects are found not guilty.
EXAMPLES
According to the First-hand report in 2022, some of the best forensic accounting firms in the
United States are as follows:
❖ PwC (PricewaterhouseCoopers) LLP
❖ Deloitte
❖ Ernst & Young LLP (EY)
❖ KPMG LLP
❖ Grant Thornton LLP
FORENSIC AUDIT
A forensic audit is an examination and evaluation of a company's or individual's financial
records in order to uncover information that can be utilised in court. In the accounting industry,
forensic auditing is a specialty, and most big accounting firms include a forensic auditing
department. Experience in accounting and auditing practises, as well as specialist
understanding of the legislative foundation for forensic audits, are required for forensic audits.
Forensic audits involve a broad range of investigation tasks. A forensic audit may be conducted
in order to prosecute someone for fraud, embezzlement, or other financial crimes. During the
course of a forensic audit, the auditor may be called in to testify as an expert witness in court.
Forensic audits may also be conducted in instances other than financial fraud, such as
bankruptcy filing disputes, business closures, and divorces.
REASONS FOR CONDUCTING A FORENSIC AUDIT
Investigations into forensic auditing may reveal or confirm a variety of unlawful behaviours.
If there is a chance that the evidence acquired will be utilised in court, a forensic audit is usually
used instead of a regular audit.
The forensic audit process is comparable to a standard financial audit in that it involves
planning, obtaining evidence, and drafting a report, but it also includes the possibility of a court

5. appearance. Both parties' lawyers present proof indicating the crime was either uncovered or
denied, determining the amount of harm suffered. If the case goes to trial before a judge, they
explain their findings to the defendant.
FUNCTIONING OF FORENSIC AUDIT
The following are the steps in a forensic audit:
1. Planning the Investigation
The forensic auditor and the team will devise a strategy for achieving their goals.
2. Gathering Evidence
The evidence acquired should be adequate to establish the identity of the fraudster(s), show the
facts of the fraud scheme, and document the financial loss incurred as well as the parties
affected by the crime in court.
3. Reporting
A forensic audit will need the customer to have a documented report on the crime so that they
can continue to launch a legal case if they so wish.
4. Proceedings in Court
The forensic investigator must be present in court to explain the evidence collected and how
the team discovered the suspect(s).
DIFFERENCE BETWEEN FORENSIC ACCOUNTING AND FORENSIC
AUDITING
Before we look at the differences between forensic accounting and auditing, it's important to
look at the similarities. After all, there has to be some basis for the mistake that they are the
same thing to exist in the first place.
The first parallel between forensic accounting and auditing is that both require a solid
understanding of accounting rules and fundamentals. They are also carried out by experts with
an accounting degree. Furthermore, both forensic accounting and auditing employ fundamental
computing, analysis, and bookkeeping procedures and methodologies.
The fact that both professions require preparing reports to assess if a firm's financial records
provide a fair portrayal of its current status is perhaps the most important similarity between

6. forensic accounting and auditing, and possibly the biggest cause of confusion. The rationale
for this, on the other hand, is entirely different.
Now that we've looked at the parallels and differences between forensic accounting and
auditing, it's time to look at the differences. To begin, keep in mind that while all auditors are
accountants, not all accountants are auditors.
This is because forensic accountants are masters in uncovering and documenting fraud in
financial transactions due to their abilities, qualities, and experience. They must also know how
to obtain and document fraud evidence for both criminal and civil purposes, how to interview
third parties, and how to testify as an expert witness in court.
Another significant distinction between forensic accounting and auditing is the manner in
which the two disciplines are used. Rather of analysing if a company's financial statements
provide a realistic appraisal of its current status, forensic accountants are encouraged to conduct
the exact opposite.
Forensic accountants are hired particularly to investigate fraud situations. Their main goals are
to figure out who perpetrated the fraud, how it happened, how much money was stolen, and
how to prevent it from happening again. While a well-planned and executed financial audit can
occasionally reveal evidence of fraud, it is not the primary purpose. An audit will not examine
each and every transaction, nor will it explicitly hunt for fraud.
Auditors have a primary responsibility to the investing public, ensuring that shareholders are
not deceived into parting with their money based on false financial statements. Because this is
a continuing job, their responsibilities are frequently broad.
Forensic accountants, on the other hand, have a very narrow scope of work. They aren't
interested with achieving a broad consensus on a company's overall financial situation. Their
goals are spelled out in an engagement letter, and their work is normally overseen by counsel,
making it private and secret.
When it comes to forensic accounting vs auditing, the method itself is the most important factor
to consider. In most cases, auditing will begin with a programme and plan that does not deviate
in any way. A forensic accountant's inquiry, on the other hand, is not always linear, and
depending on the information revealed, it may require many pivots or new orientations.

7. CONCLUSION
In conclusion, a forensic inquiry is a highly specialised sort of engagement that necessitates
highly skilled team members with knowledge of both accounting and auditing methodologies
as well as the necessary legal framework.
A forensic accountant may be called to look into a variety of various sorts of fraud. Members
of the investigating team must be comfortable appearing in court to explain how the
investigation was handled and how the evidence was acquired, as the investigation is likely to
lead to legal proceedings against one or more individuals. To ensure that their integrity and
professionalism are not questioned during the legal process, forensic accountants must acquire
specialised training in these areas.