Forensic Accounting

Author: Ayushi Verma

Forensic Accounting

INTRODUCTION

Within the developing financial situation, forensic accounting is an essential tool for revealing or enquiring about monetary wrongdoing and the course of equity, providing decisive information about the actualities found related to financial crime. In the most recent couple of years, Forensic Accounting has seen a great expansion in both intrigue and investigation in the behavioral and social parts of accounting. Even the banks, insurance companies, and even police have started taking help from the Forensic Accountants. Organizations like Indiaforensic, Institute of Chartered Accountants of India (ICAI), and Association of Chartered Certified Accountants (ACCA) offer courses on forensic auditing in India due to an increase in the white-collar crime and the problems faced by Law enforcement agencies in uncovering fraud. There is very little uncertainty that this area will be one of the expanding and imperative exercises in the long run.

MEANING OF FORENSIC ACCOUNTING

Forensic Accounting is a strength hone zone where accounting, auditing, and investigating skills are used to analyze information that is suitable for use in a court of law. Forensic accountants specializing in forensic accounting are often engaged to evaluate damages in instances related to extortion and misappropriation.

DEFINITION OF FORENSIC ACCOUNTING

The definition of Forensic Accounting is changing in response to the developing needs of corporations.

According to AICPA(1993)[1]: “Forensic accounting is the application of accounting principles, theories, and discipline to facts or hypotheses at issues in a legal dispute and encompasses every branch of accounting knowledge.”

According to the Journal of Forensic Accounting[2], “Forensic accounting is sufficiently thorough and complete so that an accountant, in his/ her considered independent professional judgment, can deliver a finding as to accounts, inventories, or the presentation thereof that is of such quality that it would be sustainable in some adversarial legal proceeding, or within some judicial or administrative review.”

Forensic accounting is “The science that deals with the relation and application of finance, accounting, tax, and auditing knowledge to analyze, investigate, inquire, test and examine matters in civil law, criminal law, and jurisprudence in an attempt to obtain the truth from which to render an expert opinion.”[3]

As per Webster Dictionary, Forensic Accounting, “Belonging to, used in or suitable to courts of judicature or public discussion and debate.”[4]

HISTORICAL PERSPECTIVE OF FORENSIC ACCOUNTING

The term Forensic Accounting was first used by Maurice E. Peloubet in 1946 in his essay “Forensic Accounting: Its Place in Today’s Economy.” During 3300-3500 BC, Archaeological studies show that accountants of Egypt were involved in the prevention and detention of fraud. A close relationship was being developed between accountancy and legal profession during the 18th century.

The following are a few major milestones in forensic accounting:–

  • 1942: Maurice E. Peloubet distributed “Forensic Accounting: its place in today’s economy.”
  •  1982: Francis C. Dykman composed “Forensic Accounting: The Accountant as an Expert Witness.”
  • 1986: The AICPA issued Practice Aid # 7, delineating six zones of case administrations – harms, antitrust examination, accounting, valuation, general counseling, and investigations.
  •  1988: Association of Certified Fraud Examiners set up
  • 1988: another class of criminologist books where the Forensic bookkeeper was the star.
  • 1992: The American College of Forensic Examiners was established.
  • 1997: The American Board of Forensic Accountants was established
  • 2000: The Journal of Forensic Accounting, Auditing, Fraud, and Taxation were established.

In India, Kautilya was the first person who used this term to mention the famous forty ways of misappropriation in his famous book Kautilya Arthashastra.

FORENSIC ACCOUNTANT

According to Justin Pope, “Forensic accountants inhabit a cloak and dagger corner of the accounting world. Their job: respond at a moment’s notice when a client spots trouble – anything from procurement fraud to a top executive cooking the books to industrial espionage.”[5]

Forensic Accountant’s work is to search and compile financial evidence and develop a computer application to oversee the information collected and to communicate their findings within the frame of reports or presentations. He may also be asked to prepare visual aids to bolster trial evidence. He can be an expert witness, a consultant, or play other roles such as referee, arbitrator, or mediator. 

MEANING OF FORENSIC AUDIT

Investopedia defines – A forensic audit is an examination and evaluation of a firm’s or individual’s financial information for use as evidence in court. A forensic audit can be conducted in order to prosecute a party for fraud, embezzlement, or other financial claims.[6]

Forensic Audit has an imperative role in assisting the corporates to maintain efficiency as well as merit at par. It is a detailed engagement that requires the expertise of not only accounting and auditing procedures but also expert knowledge regarding the legal framework.[7]

BENEFITS OF FORENSIC ACCOUNTING

Forensic Accounting allows us to gain a deeper understanding of what’s going on behind the scenes of financial capacity.

  • It minimizes and prevents unnecessary loss faced by the business community.
  • Forensic Accountants play a major role in examining and investigating the current financial situation.
  • Forensic Accounting reduces the risk of exploitation
  • Forensic Accounting helps to improve brand reputation and authority as fraud can do the kind of reputation damage.

FORENSIC ACCOUNTING IMPLEMENTATION IN INDIA

In India, Forensic Accounting needs its due affirmation indeed consequent to disturbing increment within the complex budgetary wrongdoings and non-appearance of palatably prepared experts to investigate and give subtle elements concerning complex cash related infringements. It is a developing field of financial fraud detection. There is an acute shortage of qualified accountants with adequate technical knowledge of forensic issues in India. It is difficult to sue forensic fraudsters from other countries as more and more investors from foreign countries invest in India due to liberalization and fast-moving economy. It is an expensive form of investigating methods. Moreover, there is no specific guideline or acts regarding forensic accounting in India. Forensic Accountants have come to the limelight only recently due to a rapid increase in frauds and white-collar crimes. There is a huge requirement for honesty, fairness, and transparency in Indian Corporate reporting.[8]

CONCLUSION

In India, individuals should be made aware of the Forensic Accounting as it is really helpful in investigating financial frauds. It should be made a part of the curriculum at the undergraduate as well as the post-graduate level across the country. Whether it is securities exchange extortion or bank fraud or digital fraud, scientific accounting has turned into an imperative instrument for examination. Requisite amendments in the law should be undertaken to establish the importance of forensic accounting in India.


[1] AICPA(1993), Professional Standards, American Institute of Certified Public Accountants, New York, USA.

[2] Fraud, the unmanaged risk, 2003

[3] Zia, T. A. (2010). Development, Delivery and Dynamics of a Digital Forensics Subject. Digital Forensics conference (p. 175). Presented at the 8th Australian Digital Forensics

[4] https://www.merriam-webster.com/dictionary/forensic

[5] https://www.fcpas.org/about-us/what-is-a-forensic-accountant/#:~:text=%E2%80%9CForensic%20accountants%20inhabit%20a%20cloak,the%20books%20to%20industrial%20espionage.%E2%80%9D

[6] https://www.investopedia.com/terms/f/forensic-audit.asp#:~:text=key%20takeaways,embezzlement%2C%20or%20another%20criminal%20behavior.

[7] http://www.allbankingsolutions.com/Articles/Articles-Pan-Forensic-Audit.htm#:~:text=By%20definition%2C%20’Forensic%20Audit’,embezzlement%20or%20other%20financial%20claims%E2%80%9D.

[8] https://www.slideshare.net/JashandeepsinghBhatt1/research-paper-forensic-accounting

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