Forensic accounting employs a mix of accounting, auditing, and investigative acumen to conduct

a scrutiny into a company’s financial statements. Thus, forensic accounting provides an accounting

analysis from a litigation perspective. Forensic accountants usually follow are a process which involves

accumulating financial evidence, developing technical applications, organizing the information collected

and communicating their findings in the form of reports or presentations suited for testimonies in court.

Needless to say, forensic accountants must have a good knowledge of legal proceedings.

Why is Forensic Accounting required?

The blatant occurrences of financial frauds have raised questions on the integrity of accounting practices.

Theses cases mean that the corporations have failed to show accurate information to their investors, and

provided inappropriate disclosures of their financial statement. Scandals and frauds like this tarnish the

image of the company and they lose shareholder as well as public confidence. Quality financial reporting

is crucial for the development of an efficient capital market. Therefore it is imperative to bring in a

microscopic level of scrutiny for the detection and prevention of such frauds. Forensic Accounting, a term

coined by in 1946, is a niche area of investigation, which has its own analytical procedure to unravel the

stories behind these white-collar crimes.

Top Forensic Accounting Fims

Top forensic accounting firms are as follows –

S. No Top Forensic Accounting Firms

1 PwC (PricewaterhouseCoopers) LLP

2 Ernst & Young LLP (EY)

3 Deloitte LLP

4 KPMG LLP

5 Grant Thornton LLP

6 BDO USA LLP

7 RSM US LLP

8 Crowe Horwath LLP

9 Baker Tilly Virchow Krause, LLP

10 Moss Adams LLP

Case studies of Forensic Accounting

Enron: Early 2000
In the early 2000s, the notorious Enron scandal shook the accounting world.

Enron borrowed money in order to maintain their rate of growth, which had
propelled rapidly in 1999 and 2000. Reports suggest that they chose to

hide debt from their books and investors by collaborating with certain fake

companies and Special Purpose Vehicles. There was a lot of secret

information being exchanged and gradually everyone grew skeptical as to

how Enron is making money. In late 2001, the SEC initiated investigation

Enron’s partnerships and it soon became apparent they owed over $6

billion in debt. The company had apparently adopted the “Mark-to-Market

Accounting “technique where it hid all its losses and inflated its profits.

The Forensic Accounting team investigated that there were complex

accounting practices, misrepresentation of financials and dubious

partnerships. However, the huge scandal enforced the Sarbanes and Oxley

Act in 2002. Sarbanes-Oxley brought in an entirely new field of

investigation for Forensic Accountants. This Act imposed stringent penalties

for tampering, altering or fabricating company financial records, and for

trying to mislead shareholders through fraudulent accounting practices.

Tyco International: Late 2000

Tyco International was a company that grew manifold through inorganic

measures. The company’s corporate scandal of 2002 stresses the issue of

unethical business practice and related issues. Tyco’s case shows that ethics

issues can occur in different parts of an organization. Even outsiders or

third parties could get involved in these ethics issues. The major ethical

issues in Tyco’s case were Unethical Leadership, Unethical business

practice of subordinates and Unethical auditing practice on Tyco’s

business. Forensic Accountants were deployed to scrutinize the story

behind major and minor audit loopholes.

Conclusion
Despite all odds, Forensic Accounting is here to remain as long as there are

financial crimes. According to PricewaterhouseCoopers, in 2014, 37.0% of

global businesses have reported being impacted by economic crime,

indicating a significant rise from 30.0% in 2009. The increase in economic

crime rate moderately justifies the industry’s rising demand, as the Forensic

Accounting Services industry entails fraud prevention, detection, and other

offerings, among other products.

Financial frauds and misappropriations occur irrespective of the size of the

organization and these have been on a rise. According to IBIS, over the past

five years, companies have increasingly relied on third-party consultants,

rather than in-house employees, to investigate on their behalf.

Consequently, the revenue for the Forensic Accounting industry is expected

to grow over the five years to 2021. However, not all firms involved with

Forensic Accounting will grow at the same rate. There will always be a

distinction between mediocre players and high profile players.

Nevertheless, this remains a niche segment and in the future, there may be

new investigative techniques used to probe the cases.

What is Forensic Accounting?

Forensic accounting utilizes accounting, auditing and investigative skills to

conduct an examination into the finances of an individual or business.
Forensic accounting provides an accounting analysis suitable to be used in
legal proceedings. Forensic accountants are trained to look beyond the
numbers and deal with the business reality of a situation. Forensic
accounting is frequently used in fraud and embezzlement cases to explain
the nature of a financial crime in court.
Understandi ng For ensic Accounting

Forensic accountants analyze, interpret and summarize complex financial

and business matters. They may be employed by insurance companies,
banks, police forces, government agencies or public accounting firms.
Forensic accountants compile financial evidence, develop computer
applications to manage the information collected and communicate their
findings in the form of reports or presentations.

Along with testifying in court, a forensic accountant may be asked to

prepare visual aids to support trial evidence. For business investigations,
forensic accounting entails the use of tracing funds, asset identification,
asset recovery and due diligence reviews. Forensic accountants may seek
out additional training in alternative dispute resolution (ADR) due to their
high level of involvement in legal issues and familiarity with the judicial
system.