What is Forensic Accounting?

The term “forensic” conjures images of pathologists, crime scenes, and the morgue. Forensic accountants and forensic criminologists do have a common denominator, which is the pursuit of evidence that will stand the scrutiny that the rules of evidence and procedure demand for admission as evidence before a court. The forensic pathologist examines and probes and reviews evidence to determine the cause of death and to answer the question “What happened?” Similarly, a forensic accountant digs through a financial problem to determine “What happened to the money?”. Forensic accounting can be broadly classified into two categories encompassing investigative accounting and litigation. Litigation support—Providing assistance in areas of finance and accounting in a matter involving existing or pending litigation, arbitration or mediation, with a primary focus on issues relating to the quantification of economic losses or damages in such areas as shareholder and marriage disputes, personal injury or death, eminent domain, financial crimes; claims for warranty, product liability, intellectual property and insurance; insolvency litigation, missing assets and breach of contract. The forensic accountant analyzes the transaction through such services as accounting reconstruction, accounting analysis, business valuation, share and option valuation, contract analysis, revenue recognition, commercial damage calculations, economic loss calculations, investigation of fraud, conversion, embezzlement, fraudulent transfers, due diligence examinations, contractual compliance assessment, royalty audits, and asset tracing. Investigative accounting – Concern with the transaction of a criminal nature. These crimes might include employee theft, securities fraud, insurance fraud, kickbacks, advance fee frauds or even the hiding of assets by one spouse from the other, which often require tracing cash transactions by transaction, bank account by bank account and entities by entity.