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Forensic Accounting: What It

Is, How It's Used
By ADAM HAYES Updated April 01, 2022
Table of Contents
Reviewed by MICHAEL J BOYLE
What Is Forensic
Fact checked by KIRSTEN ROHRS SCHMITT
Accounting?

Career as a Forensic
Accountant

Investopedia / Dennis Madamba

What Is Forensic Accounting?

Forensic accounting utilizes accounting, auditing, and investigative skills to
examine the finances of an individual or business. Forensic accountants are
CPAs that look for evidence of crimes and commonly work for insurance
companies, financial institutions, and law enforcement agencies.

Forensic accountants analyze financial records and accounts that may be used
as legal evidence and often testify in court cases as expert witnesses. They may
work on cases such as fraud and embezzlement and explain the nature of a
financial crime in court. [1]

KEY TAKEAWAYS
Forensic accounting is a combination of accounting and investigative Advertisement
techniques used to discover financial crimes.
Forensic accountants explain the nature of a financial crime to the
courts.
Forensic accountants trace funds, identify assets and conduct asset
recovery, and perform due diligence reviews.
Forensic accounting is used by the insurance industry to establish
damages from claims. [1]

Career as a Forensic Accountant

Forensic accountants analyze, interpret, and summarize complex financial
data. They compile financial evidence, develop computer applications to
manage the information collected, and communicate their findings in the form
of reports or presentations.

The accountant's tasks include tracing funds, asset identification, asset

recovery, and due diligence reviews. Forensic accountants may also train in
alternative dispute resolution (ADR) due to their high level of involvement in
legal issues and familiarity with the judicial system.

Litigation Support
Forensic accounting is utilized in litigation when quantification of damages is
needed. Parties involved in legal disputes use the findings of a forensic
accountant to resolve disputes via settlements or court decisions, such as
compensation or benefit disputes. The forensic accountant may be utilized as
an expert witness if the dispute escalates to a court decision. [2]

Criminal Investigation
Forensic accountants analyze whether a crime occurred and assess the
likelihood of criminal intent. Such crimes may include employee theft,
securities fraud, falsification of financial statement information, identity theft,
or insurance fraud. [3]

The scope and mechanics of Bernie Madoff's Ponzi scheme are understood
today because forensic accountants dissected the scheme and made it
understandable for the court case. Forensic accountants search for hidden
assets in divorce cases and investigate breaches of contracts, tort, or
disagreements relating to company acquisitions like breaches of warranty, or
business valuation disputes.

Forensic accountants may investigate construction claims, expropriations,

product liability claims, or trademark or patent infringements or determine the
economic results of the breach of a nondisclosure or non-compete agreement.
[3]

Insurance Industry
Forensic accounting is routinely used by the insurance industry. A forensic
accountant may be asked to quantify the economic damages arising from a
vehicle accident or a case of medical malpractice or other claims. One of the
concerns about taking a forensic accounting approach to insurance claims as
opposed to an adjuster approach is that forensic accounting is mainly
concerned with historical data and may miss relevant current information that
changes the assumptions around the claim. [4]

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ARTICLE SOURCES

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Related Terms
Master Analyst in Financial Forensics (MAFF)
A Master Analyst in Financial Forensics (MAFF) is a specialized accounting credential
certifying expertise in identifying financial crimes. more

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White-collar crime is a nonviolent crime characterized by deceit to obtain or avoid losing
money, or to gain a personal or business advantage. more

Forensic Audit Definition

A forensic audit is an examination of a firm's or individual's finances to derive evidence
that can be used in a court of law or legal proceeding. more Partner Links

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Performing due diligence means thoroughly checking the financials of a potential
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