Forensic Accounting : Work, Types, Duties, Advantages & Career

What is Forensic Accounting?

Forensic accounting means using scientific techniques to examine the accounts of any firm or person if there is suspicion of any type of fraud or misconduct. According to the ICAI, forensic accounting is the use of professional accountants’ in matters involving fraud or misconduct to gather all the relevant evidence. The accountants involved in the investigation use their accounting, auditing, and investigative skills to find any relevant evidence for a potential fraud. Forensic accounting is usually done by an independent auditor or an audit firm, and these are requested either by the management of the company or by the government to find out if there is any kind of fraud in the accounts of the company. The government usually orders forensic accounting of those companies in which there is any sudden flow of cash or if the company is generating more profit than expected.

Geeky Takeaways:

• Forensic accounting is the use of professional accountants’ in matters involving fraud or misconduct to gather all the relevant evidence.
• The government orders forensic accounting of those companies in which they suspect anything.
• Forensic accountant mainly identifies any type of irregularity in the books of the company.
• As the number of financial crimes is increasing in society, the demand for forensic accountants is also increasing in the market.

How Does Forensic Accounting Work?

The main difference between normal accounting and forensic accounting is that the forensic accountant uses legal methods to identify whether the transaction of the company is legal or not. Forensic accountants can also submit their findings in court and they can act as experts in these kinds of investigation. In this, the accountants audit the books of the accounts of the company to find whether there is any type of fraud committed in the company or not. These accountants can ask the company to submit their entire books and can analyze all of them. The company cannot restrict themselves from checking their accounts as it is requested either by the board of the company or by the government. These accountants or firms use scientific techniques to analyze the books as the number of transactions they have to analyze is very big. They submit their finding to the government or the board of the company and their finding are accepted as expert evidence in the court.

Types of Forensic Accounting

Forensic accounting means using scientific techniques to examine the accounts of any firm or person if there is suspicion of any type of fraud or misconduct. There are different types of forensic accounting in India and each type of forensic accounting investigates a different aspect of financial fraud in the organization. Some of the types of forensic accounting are as follows,

1. Fraud Examination and Investigation: In this type of forensic accounting, the forensic accountant or the firm investigates the financial statements of the company to find whether there is any type of fraud or embezzlement in the company. This type of forensic accounting is mainly done in the cases of financial crimes, asset misappropriation, and money laundering.

2. Litigation Support Services: In this type of forensic accounting, the forensic accountant helps the advocates in going through the accounts of the company and analyze any type of fraud in the accounts. They are hired by advocates to provide their expert opinion in cases involved with financial crimes. They find and report any type of misappropriation in the books of the company in the court.

3. Corporate Governance and Compliance: In our country, forensic accountants also help companies maintain uniformity with the rules and regulations of the law. They also help the company in formulating their internal policies and SOP that help the company to prevent any kind of fraud in their company.

4. Anti-Money Laundering (AML) Compliance: In this type of forensic accounting, the forensic accountant helps the organization in developing Anti-Money Laundering policies and procedures that help the organization in preventing any kind of money laundering activity in their company. The company with the help of a forensic accountant can also detect if there is any money laundering activity in the company and whom all are involved in the same.

5. Insurance Claims Investigation: In this type of forensic accounting, the forensic accountant helps the insurance company in analyzing the claims. In this, they analyze the claimed losses and the extent of the coverage of the policy. They help insurance companies differentiate valid claims from invalid claims.

6. Tax Investigation and Compliance: In this type of forensic accounting, the forensic accountant helps the individual or company in dealing with tax investigation and compliance. In this, they help the individual or company in investigating their financial records and they also make a strategy in case it is necessary.

Forensic Accountant Duties

Forensic accountant mainly identifies any type of irregularity in the books of the company. The main duties of any forensic accountant are as follows,

1. Statement Review: They review the statement of the company to find out any irregularity in the same. By reviewing the statement, they can also analyze any type of fraud.

2. Document Review: They review all the documents of the company such as invoices, contracts, bank records, and any other financial documents.

3. Fraud Detection: Forensic accountants detect any type of fraud in the company by doing an investigation of the records of the company.

4. Assets Tracing: They also trace the assets of the company and from where such assets have come from and they also check whether any assets are involved in any type of illegal activity.

5. Data Analysis: They analyze all the data of the company, they use different scientific techniques to analyze that data as the amount of the data is very large and they have to identify any abnormalities in the data.

Forensic Accounting Audit Procedures

The forensic accounting audit procedures involve various steps and these steps are explained below,

1. Plan the Investigation: A forensic accountant needs to plan the investigation before starting the investigation. When any organization hires a forensic accountant, then the accountant must have clarity regarding what he/she has to investigate.

2. Interview: The forensic accountant interviews various persons in the company i.e the employees, the vendors, and the key managerial personnel of the company. They conduct these interviews to gather any relevant information. They also cross-check the activity.

3. Gather Evidence: The forensic accountant while doing the investigation gathers relevant evidence that explains the potential fraud in the company. They access all the files of the company to find out when the fraud started in the company and who is involved in the fraud. They use a variety of scientific techniques in collecting the evidence that helps them in exposing the fraud.

4. Detailed Report: They provide a detailed report regarding the investigation. In that report, all the details are included regarding whom all the interviewed, what are their statements, and what conclusion they have reached. In that report, they also mention who all are involved in the fraud, and they also provide the statements that prove the fraud in the company.

5. Providing Opinion in the Court: Based on the report by a forensic accountant, the companies can initiate legal proceedings in court against all who are involved in the fraud. The forensic accountant can provide their expert opinion in court and can explain the entire fraud of that employee.

Advantages of Working in Forensic Accounting

1. Variety of Work: A forensic accountant deals with a lot of work from the investigation, financial analysis, fraud detection, and litigation support these all things are very different and provide a variety of work for the forensic accountant and keep their work interesting.

2. High Demand: As the number of financial crimes is increasing the society the demand for forensic accountants is also increasing in the market.

3. Great Opportunities: As they grow in their career, they have various opportunities they can become certified fraud examiners (CFEs), forensic accounting specialists in big companies, or independent consultants for different companies. Many companies also hire forensic accountants in higher positions in their company.

4. Challenges: This job can be very interesting for the people who likes to face challenges at their jobs.

5. Compensation: In this field forensic accountant gets handsome compensation for the work they done.

Disadvantages of Working in Forensic Accounting

1. Pressure: This job can sometimes become very challenging, while doing accounting for any big firm the pressure on the accountant is enormous. There is a very strict timeline that they have to follow and they also have the pressure to provide an accurate report regarding the fraud in the company.

2. Working Hours: There are no fixed working hours while working as a forensic accountant. There can be cases in which there is a strict timeline that you have to follow and to complete the investigation you even have to work late in the night or also have to work on weekends.

3. Emotional Challenges: Investigating potential fraud or embezzlement in the company that leads to the firing of employees can take a very serious toll on the mental health of the accountants.

4. Continuous Learning: This job requires the person to keep updated with all the latest technologies that can be used in forensic accounting. They also have to keep themselves updated about the relevant laws and all the updates in the same.

5. Legal Challenges: They have to be very attentive while doing the investigation as they have also access to the financials of the company they must have to ensure that nobody else can access the information that the company has provided them.

How to Become a Forensic Accountant?

In India, there is no specialized degree or course that makes you a forensic accountant. A forensic accountant is a person who specializes in various fields, so a specific degree in a field will not make you a forensic accountant. A forensic accountant must know fields such as accounting, auditing, legal, and investigation. These are the skills that a forensic accountant must have to become a good forensic accountant. Due to globalization and the increase in the business sector, the need for forensic accountants and auditing firms is also increasing.

In India, it is not necessary for a person to be a Chartered Accountant or company secretary to become a forensic accountant. The team of forensic accountants has people from all the fields such as chartered accountants, company secretaries, lawyers, engineers, and MBA professionals. Some institutions in our country also provide certificate courses for a forensic accountant. These certifications can be essential when a person is applying for a job as a forensic accountant. Some of the organizations that provide certifications are the Association of Certified Fraud Examiners, the Institute of Certified Forensic Accountants, and the National Association of Certified Valuators and Analysts.

What Does a Forensic Accountant Do?

Forensic accountants use scientific techniques to examine the accounts of any firm or person if there is suspicion of any type of fraud or misconduct. They use their accounting, auditing, and investigative skills to find any relevant evidence for a potential fraud. There are various roles and responsibilities that a forensic accountant has to perform. They review the documents of the company and detect if there is any fraud going on in the company, they are also involved in asset training, and data analysis, and they can also act as an expert witness in court. Other than these there are also various tasks that a forensic accountant performs. The company hires forensic accountants or such firms if they find anything suspicious in the company. The company usually prefers to have an external forensic accountant because accounting and auditing can become a difficult task for an internal employee of the organization and also result in a conflict of interest.

What Skills Do I Need to Become a Forensic Accountant?

There are various skills that a good forensic accountant must possess. The main skills that they must have are accounting, auditing, analyzing, and investigation. If the forensic accountant does not possess these skills, then they will not be able to do their job in a better way. The job of forensic accountants requires them to analyze various problems at the same time and detect if there is any form of abnormalities and that requires them to have the best analytical skill in the market. They must have also good communication skills so they explain these complex financials to the board of the company. They also have to provide written reports of these finances to the company in a way that can be understood by a person who does not have to commerce or accounts background.

Career as a Forensic Accountant

In India, there is a current rise in this sector and the demand for forensic accountants in the job market is also increasing. There are several factors for the same and now companies are also building an in-house team of auditors that keeps a check on the sale and purchase of goods and services of the company. They also help all the teams in following the SOP and to follow the compliances established by the law. Forensic accountants grow as they gain experience in the work they do, and companies tend to hire forensic accountants who have more experience in the field. As this sector is new and emerging those who want to grow in this sector have to learn different skills and take certifications as many as they want.

Job Titles of Forensic Accountants and Average Salary Package

Forensic accountants can work in different sectors and different roles as they have various skills and knowledge. The main places where a forensic accountant works are public accounting firms, consulting firms, government bodies, and companies. All of these agencies have similar types of work for a forensic accountant and they are hired as a forensic accountant or consultant in the firms. Organizations such as the CBI or Enforcement Directorate also hire forensic accountants to investigate financial crimes and provide solutions. In India, the average salary package of an initial forensic accountant ranges from 3-10 lakhs and those who have experience in this sector have a salary range of 8-15 lakhs.

Conclusion

As the business is growing in the country the chances of these kinds of financial fraud in the companies is also growing. So the companies need to keep themselves updated and place SOPs in their company that all have to follow. If the companies take strict measures, then there will be very less chances of these kinds of fraud in their company. Forensic accounting is very essential and if there is any suspicion then the company must perform a forensic accounting of their organization with the help of external agencies to remove all the irregularities present in their company.

Forensic Accounting – FAQs

What is the meaning of forensic?

The meaning of forensics is using any scientific techniques to investigate a crime.

What is Forensic Accounting?

The term forensic accounting means using scientific techniques to examine the accounts of any firm or person if there is suspicion of any type of fraud or misconduct.

How to become a forensic accountant in our country?

There is no specialized way to become a forensic accountant in our country i.e. there is no course that directly makes you a forensic accountant.

What is the difference between normal accounting and forensic accounting?

The main difference between normal accounting and forensic accounting is that the forensic accountant also uses legal methods to identify whether the transaction of the company is legal or not.

What is the main role of a forensic accountant?

Forensic accountant mainly identifies any type of irregularity in the books of the company.