Forensic Accounting and Your Organization 1 Running Head: FORENSIC ACCOUNTING: WHAT IT CAN DO FOR YOUR ORGANIZATION Forensic Accounting: What It Can Do For Your Organization Kira Bailey Dr. Harper BUS 520 Strayer University Charleston, SC Forensic Accounting and Your Organization 2 ABSTRACT Forensic accounting is the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of the rules of evidence.
Organizations hire forensic accountants for guidance when evaluating potential business transactions to look for suspicious signs of accounting activity, provide expertise during litigations, look for signs of suspicious activity and fraud by individuals and businesses, and evaluate accounting and bankruptcy records of suspected terrorists. Forensic Accounting and Your Organization 3 Forensic Accounting: What It Can Do For Your Organization Forensic accounting is defined as the practice of rigorous data collection and analysis in the areas of litigation support consulting, xpert witnessing, and fraud examination (Rezaee, 2004). Forensic accountants are professionals who use a unique blend of education and experience to apply accounting, auditing and investigative skills to uncover truth from legal opinions, and assist in investigations. Forensic accountants may be involved in litigation support providing assistance in a given case and investigative accounting by looking into legal activities. Forensic accounting involves looking beyond the numbers to grasp the substance of situations. It is more than accounting and more than detective work.
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It is the application of a specialized body of knowledge to economic transaction analysis and reporting. A Forensic Accountant investigates and analyzes suspected financial misconduct and helps to prepare the evidence used to argue a case in civil or criminal trials by communicating the resulting conclusions as reports, court exhibits or collections of documents (Foster, 2004). This field is also referred to as “investigative accounting. ” A forensic accounting specialist works by auditing and verifying records, collecting evidence and interviewing people involved in the case.
A forensic accountant is expected to assist in legal proceedings by testifying in court as an expert witness or preparing visual aids to support evidence. Another major part of the job is to develop computer applications to assist in the presentation of the analysis of financial evidence. Forensic accounting is the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of the rules of evidence. Organizations hire forensic accountants for guidance when evaluating potential business transactions to look for Forensic Accounting and Your Organization 4 uspicious signs of accounting activity, provide expertise during litigations, look for signs of suspicious activity and fraud by individuals and businesses, and evaluate accounting and bankruptcy records of suspected terrorists. Forensic Accounting essentially encompasses two major areas, investigation and litigation support. Investigation is that act that determines whether or not certain criminal matters like securities fraud, identity theft, employee theft, and insurance fraud has actually occurred.
A major part of a Forensic Accountant’s job would be to recommend certain actions that can be taken to minimize any future loss or risk. Not only does investigation occur in criminal cases, it can also take place in civil cases as well. For instance, it is the forensic accountant’s job to search for hidden assets in divorce cases. Litigation support on the other hand involves presenting factual evidence of economic issues that are related to any pending or existing litigation.
In such a case, it is the duty of the forensic accountant to quantify damages that could be sustained by the parties involved in any legal disputes. Forensic accountants also help by resolving disputes during courtroom proceedings. If a dispute is brought to the courts notice, the forensic accountant can testify as a witness. The world of forensic accounting involves grasping the seriousness of a situation and looking beyond numbers. It is more than just your regular accounting or basic detective work. Because it has such unique elements, it is an unusual combination that has been and will always be in demand.
The forensic market has seen a great deal of activity in recent years and is set to continue in the future. The growth of regulatory compliance requirements and the increase in fraud has seen a related growth in demand for forensic accountants and forensic technologists both within and outside the profession. Research confirms that preventing fraud and revealing deceptive accounting practices are in strong demand. Forensic accounting procedures to detect financial Forensic Accounting and Your Organization 5 reporting fraud should be increased.
Fraud costs companies in the United States $652 billion dollars annually. Fraud is a widespread problem that affects every organization regardless of size, location or industry. There has been an 80% increase in FBI corporate fraud cases since 2003 (US Department of Justice, 2008) and a 26% increase in U. S. identity theft convictions since 2007 (Identity Theft Task Report, 2008). Audit teams need to be trained to incorporate more forensic accounting procedures into their audit practices and retain more forensic specialists to help detect problems (Digabriele, 2008).
Since many organizations have had cases of financial fraud and corporate collapses, forensic accounting can help how an organization is managed and controlled. Effective organizational control involves the balance of cost and benefit factors. Today, many companies focus on the minimum cost of doing business. This leads to “staff reductions” and this can have a heavy impact on the organization’s internal control. This type of control can have a dangerous impact when you rely on computer applications for your business and financial reporting systems.
This may seem to make the company’s operations more efficient but it can lead to financial fraud. When a company keeps the mindset of “keeping things within the lines” it is easy to develop a good understanding of your business processes and your information and financial reporting systems. This is where some of the principles of forensic accounting can help you understand your business beyond the basics of accounting. This type of accounting can help your organization be proactive in the reduction of risk by helping you perform routine audit procedures.
It is relevant to senior managers, financial managers, internal auditors, and your organization’s external auditors to have continuous monitoring to help the company’s internal audit function to act more effectively by identifying and resolving internal control breakdowns. Forensic Accounting and Your Organization 6 References Burrus, J. (2007). Corporate Fraud: Options Cases Aim for Level Field. US Department of Justice, 2. Digabriele, J. (2008). An Empirical Investigation of the Relevant Skills of Forensic Accountants. Academic Search Premier: Journal of Education for Business, 83(6), 331-338.
Foster, P. (2004). AICPA Wants More Forensics in Financial Reporting Audits. Financial Analysis, Planning and Reporting: Institute of Management and Administration, Inc, 04(9), 10-12. Mukasey, M. , Kovacic, W. (2008). Combating Identity Theft: A Strategic Plan. Identity Theft Task Report, 18. Rezaee, Z. , Crumbly, D. , Elmore, R. (2004). Forensic Accounting Education: A Survey of Academician and Practitioners. Advances in Accounting Education, Forthcoming. World Wide Learn. (1999). Guide to College Majors in Forensic Accounting. The World’s Premier Online Directory of Education: World Wide Learn.