History of Forensic Accounting
Forensic Accounting is a relatively new profession that uses ideas and techniques started centuries ago. The profession has been molded and shaped by many aspects of the shifting world including the economy, society, and legislation. The term “forensic accounting” was first used in 1946 by Maurice E. Peloubet, a partner in a New York accounting firm. Forensic accounting service was the growth industry in the 1990s.The work of “Forensic” accountant –was to count company assets and review company accounts against frauds. The field is changing today, and it is worthwhile to speculate how much it will change in future.
Forensic Accounting Introduction
“Auditor should be watchdog and not a bloodhound”. It’s a good quote that every auditor should know. This quote makes the definition of Forensic accounting more simple. The accountant is a bloodhound of bookkeeping. These bloodhounds sniff out fraud and criminal transactions in bank, corporate entity or from any other organizations financial records.
Forensic accounting is a method of investigating financial transactions and business situations in order to obtain the truth and develop an expert opinion regarding possible fraudulent activity. Forensic accounting is the application of a specialized knowledge and specific skills to stumble upon the evidence of economic transactions. Forensic accounting can be described as the use of auditing and investigation skills to examine financial statements in the preparation to be used in a court of law. Two area of expertise make up the field of forensic accounting:-litigation support and investigation or fraud accounting.
Not a new profession, forensic accounting has been around for several decades; however, the recent wave of corporate scandals, new accounting rules, and the Sarbanes-Oxley Act are forcing companies to search more aggressively for fraud. Forensic accountants are now being hired by boards of directors to assist with companies’ corporate governance and financial reporting, in efforts to reduce fraud.
Characteristics and Skills of Forensic Accountants
There is a definite need for forensic accountants in the business world today, but not everyone possesses the many characteristics and qualities that comprise a high quality forensic accountant. Forensic accountants need to possess strong written and oral communication skills. Knowledge and experience in financial planning and management techniques, as well as advanced computer skills, including an ability to understand and apply various information technology and accounting systems, are also key characteristics of forensic accountants.
There are many skills and characteristics that are necessary for successful forensic accountants. Effective forensic accounting requires:-
Most important skill is experience. It’s also recommended that accountant that wants to become a fraud expert should go work for a law enforcement agency.
Services provided by Forensic Accountants
Your reputation-with your customers and employees, the public, regulators and other companies-is what keeps you in business and underpins your success. But reputation can be lost with terrifying speed. Forensic accounting consists of a broad area of financial statement investigation and litigation support. Various areas:-
Keeping Up with New Regulations
Keeping up with regulatory changes can be a daunting task. New rules are promulgated seemingly everyday regarding income tax, health care, accounting, litigation discovery and other key areas. Staying abreast of the latest requirements is the key part of a successful practice. How can we stay on top of all this? A few key practices may help:-
Create a process for identifying and staying current on key regulatory issues.
Modification of Forensic Practice-Handling New technologies now and in future:-
Forensic accounting practices have been, and currently are being, developed as a practice separate from auditing. Forensic services focus on fraud prevention and detection and they are strongly affected by today’s technological environment. Today’s Forensic accountant must be able to run gamut of investigative assignments, from developing forecasts to identifying fraudulent digital information.
Most of the criminals behind fraud use sophisticated technology and accounting tricks to commit complex frauds. This means that the forensic accountants need state-of-art facilities to uncover the frauds. Computers are common tools used by the culprits behind white-collar crimes. In order to find “the smoking gun” the forensic accountant will need to be able to dig deep into the company’s computer system. Forensic accountants can use specialized software and many new technologies that allow investigators to recover deleted files, crack encryptions and codes and extract and sort data.
In the future, a forensic practice will digitally monitor high level corporate employees’ digital activities to determine if they are committing or even considering committing, fraudulent activities. Forensic firms will monitor the computer’s network 24 hours a day and seven days a week to identify unauthorized financial activities. It will be the responsibility of the forensic accountants to find the lost electronic data regardless if it has been taken by the cyber criminals or misplaced within the company’s computer network.
Greatest technology-related threats to organizations:-
The respondents believed that the greatest technology-related threats to organizations in coming two-five years:-
Attackers are increasingly targeting small business on the assumption that the users may be less sophisticated and their controls are less robust and effective.
Conclusion and limitations:-
The public fraud scandals with companies like Enron and WorldCom, the internet and other technological advances, and even the threat of terrorists have created a large demand for the skills and services provided by forensic accountants. There is need for a forensic accountant to be able to look beyond the analytical details and see the big picture-to start with a goal in mind. This study brings to light is the understanding that there are certain traits and characteristics and core enhanced skills, that a forensic accountant needs to possess.
Succession will also likely to be a key concern for many forensic and valuation practices, as leaders who have built practices pass the reins to younger professionals who will need a combination of technical, development and leadership abilities.
Practitioners may also be challenged to keep up with advances in technology that can significantly alter and improve the way they conduct research or approach other areas of their practice. In terms of computer forensic services, more than half the respondents said they would be adding staff with computer forensic investigative skills, indicating recruitment and retention could be a particular challenge in this area.
Forensic Certification and education
The following certifications provide recognition for forensic and fraud accounting certification and education:-