Who Is a Forensic Accountant? What Is Their Purpose?

When people come across the word ‘forensic’, they associate it with someone’s death and subsequent investigations. The word itself means ‘meeting the standards of the courts of law', which applies to crimes and accounting.

Forensic accounting is an important discipline of accounting. Forensic accountants resolve different kinds of financial conspiracies. The following sections of this article will cover the role of forensic accountants and the reasons behind hiring them.

Who Is a Forensic Accountant?

A forensic accountant is a specialised accountant skilled at accounting, auditing and investigating. The field of forensic accounting focuses on investigating financial fraud and misrepresentation.

Forensic accountants analyse financial data and document the entire investigation process before reporting it to a court of law. They may even have to testify to the integrity of their findings. These specialised accountants must maintain independence and integrity while working on a case.

What Is The Role Of A Forensic Accountant?

A forensic accountant combines investigation with auditing to analyse the financials of a business/individual. They aim to check whether the entity is engaged in financial fraud or illegal activity.

Investigation and litigation support are two essential aspects of forensic accounting. The accountant analyses financial and other relevant documents to identify potential criminal activities. After this, they develop presentations and formulate reports to help both parties arrive at a decision.

Forensic accountants may have to testify as witnesses if negotiations fail and the two parties proceed to court. Many people believe that forensic accounting and fraud auditing are similar. While that’s not completely untrue, there is a major difference.

While fraud auditors are responsible for preventing illegal activities, forensic accountants uncover events that have already taken place. In other words, forensic accountants come into work after an incident involving financial fraud has taken place. 

Where Is Forensic Accounting Applicable? 

Forensic accounting is applicable in the following areas:

• Business fraud investigation

• Partnership and shareholding disputes 

• Economic losses

• Matrimonial cases 

• Insurance claims 

Who Hires a Forensic Accountant? 

Here’s a list of places where forensic accountants work: 

Accounting Firms

Accounting firms hire forensic accountants to deal with cases of corporate fraud. 

Financial Consulting Companies 

Generally, companies that hire forensic accountants only need them part-time. If skilled accountants need full-time jobs, they can consider joining a financial consulting company.

Government and Law Enforcement Agencies 

Government bodies and law enforcement agencies often hire forensic accountants to assist the officials with investigations of financial crimes.

Forensic Accounting Firms

Many firms offer forensic accounting services to individuals and businesses. These firms offer a team of skilled professionals to investigate financial crimes.

Security Providers and Risk Management Firms 

Forensic accounting is an extension of the work carried out by risk management firms and security providers. Such firms and companies hire forensic accountants to provide fraud prevention strategies to clients.

Use Cases of Forensic Accounting

Suppose a couple is getting a divorce, and one of them feels that the other is hiding crucial information related to income and assets. In such a situation, they can hire a financial accountant to uncover hidden financial details.

When such skilled accountants become involved in divorce cases, they can calculate the money they must allocate for alimony and child support. They also uncover the details of secret income streams, if any, and highlight hidden assets and liabilities.

Apart from divorces, forensic accountants can also act as family business advisors, especially during difficult times. They can bring to the table a unique perspective by analysing bank statements, tax returns, mortgage applications, business contracts and appointment books. 

Based on their understanding, they can suggest changes to help these businesses regain lost ground and succeed. 

Challenges Faced by Forensic Accountants 

Here are a few notable challenges for businesses to be aware of:

• Investigations carried out by a forensic accountant can damage the reputation of a business or leak confidential information. 

• The media may speculate that a reputed business has engaged in unethical practices if it hires these professionals.

• Forensic accounting can become expensive if the investigation duration lengthens. 

• It might be difficult to recover the lost reputation, even if proven not guilty.

Despite these challenges, many benefits come with hiring a forensic accountant, which is why so many businesses are opting for their services. Forensic accounting is where the latest techniques and equipment help uncover financial evidence. It involves well-trained professionals who use modern technology, knowledge systems, and computer applications to investigate financial crimes.

From a career perspective, forensic accountants' services will always be in-demand and high-paid because of their highly specialised and skilled nature.