Forensic Accounting

 What is Forensic Accounting?

 Ask Enron and WorldCom

 Legally accurate accounting.

 accounting that is sustainable in some adversarial legal proceeding, or within some

judicial or administrative review.

• Although relatively new to the accounting profession, the role of a forensic expert in other
professions has been in place for some time

• Forensic – ‘belonging to, used in, or suitable to courts of judicature or to public discussion or
debate’

• In the accounting profession the term ‘forensic’ deals with the relation and application of
financial facts to legal problems

• The term ‘forensic accounting’ is generally taken to refer to the comprehensive view of fraud
investigation, including

• The audit of accounting records to prove or disprove fraud

• The interview of related parties

• The act of serving as an expert witness

 Focus is:

 the evidence of economic transactions and reporting

 the legal framework which allows such evidence to be suitable to the purpose(s) of
establishing accountability and/or valuation

 In other words:

 the identification, interpretation, and communication of the evidence of economic

transaction and reporting events

Department of Labor Statistics Job Description

 Some public accountants specialize in forensic accounting—investigating and interpreting white

collar crimes such as securities fraud and embezzlement, bankruptcies and contract disputes,
and other complex and possibly criminal financial transactions, such as money laundering by
organized criminals.

 Forensic accountants combine their knowledge of accounting and finance with law and
investigative techniques in order to determine if illegal activity is going on.
• The involvement of the forensic accountant is almost always reactive – they primarily respond to
complaints arising in criminal matters, statements of claim arising in civil litigation and rumours
and enquiries arising in corporate investigations

• The primary role of a financial internal auditor is to be proactive in the prevention and detection
of fraud or irregularity in a corporate or regulatory environment. External auditor is monitoring
compliance with GAAP and fair representation of the financial condition of the company

• The involvement of the forensic accountant is almost always reactive – they primarily respond to
complaints arising in criminal matters, statements of claim arising in civil litigation and rumours
and enquiries arising in corporate investigations

• The primary role of a financial internal auditor is to be proactive in the prevention and detection
of fraud or irregularity in a corporate or regulatory environment. External auditor is monitoring
compliance with GAAP and fair representation of the financial condition of the company

• Background in accounting

• Background in Information Systems

• Preference to certifications:

• CPA

• CIA

• CFE

• Obtaining the credential involves passing a four-part, 10.5-hour exam that

covers law, financial transactions, investigation, criminology and ethics

• The forensic field of accounting, currently enjoying a plethora of opportunities, is on the hunt
for technically proficient, intellectually curious, persistent, creative and discrete CPAs.

• Fortune 500 Companies

• FBI

• Starting salaries, Svendson says, can range between $50,000 and $60,000. Six-figure salaries are
not unusual, and they go much higher the higher up you get.”

• Corporate Investigations

• Association of Certified Fraud Examiners survey (2004) concluded that

• 24% of wrongdoing within a corporate environment is detected as a result of routine

internal audit

• 11% by external audit.

• 21% by accident

• 18% by internal controls

 • 40% of cases are initially detected by tip-off

• Official fraud statistics only based on reported frauds – the tip of the ice-burg?

• Small businesses particularly vulnerable to occupational fraud

Who Needs Forensic Accounting?

• Corporate Investigations
• Association of Certified Fraud Examiners survey (2004) concluded that
• 24% of wrongdoing within a corporate environment is detected as a
result of routine internal audit
• 11% by external audit.
• 21% by accident
• 18% by internal controls
• 40% of cases are initially detected by tip-off
• Official fraud statistics only based on reported frauds – the tip of the ice-
burg?
• Small businesses particularly vulnerable to occupational fraud