Forensic Accounting – Definition

Cite this article as:"Forensic Accounting – Definition," in The Business Professor, updated September 17, 2019, last accessed June 6, 2020, https://thebusinessprofessor.com/lesson/forensic-accounting-definition/.

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Forensic Accounting Definition

Forensic accounting involves making use of accounting, auditing, and investigation based knowledge in order to examine the financial activities of a person or an organization. It offers an accounting analysis as proof that one can use in lawful court proceedings. Forensic accountants have the capability to examine things besides figures and numbers. They receive training for seeing the business activities from a realistic view. This kind of accounting is commonly used in cases related to forgery and embezzlement with a view to present a detailed report on the financial crime before the judges.

A Little More on What is Forensic Accounting

Forensic accountants are known for making an in-depth analysis, interpretation, and summary of complicated financial and organizational matters. Financial institutions, police authorities, government organizations, insurance organizations, public businesses, etc. employ forensic accountants. These accountants collect financial proof, create computer applications for organizing the collected data, and then develop reports so as to present them to the required parties.

Besides testifying, a forensic accountant may require to create visual evidence in support of trial evidence. At the time of making business investigations, forensic accounting involves tracking funds, identifying assets, recovering assets, and making reviews with due diligence. As forensic accountants highly need to deal with legal cases, and have to be a lot more familiar with the court laws, they also receive training in alternative dispute resolution, or ADR.

Key points to remember

  1. Forensic accounting is an amalgam of accounting and investigative methods that accountants use for identifying fraudulent activities regarding financial matters.
  2. Forensic accounting provides an elaborated overview of financial crimes before the court.
  3. Insurance companies use forensic accounting  for establishing compensations from claims.

Forensic accounting for litigation support

In order to assess the quantification of damages, forensic accounting is used for litigation purposes. Individuals facing legal issues use these quantifications so as to resolve issues through legal settlements or jury’s decisions. For instance, this can be caused due to disputes revolving around compensations. In such cases, the presence of a forensic account is considered to be very important.

Forensic accounting for criminal investigation

Forensic accounting also helps in identifying if a criminal conduct took place, and the intention of committing that crime. These crimes vary from securities fraud, unreasonable information provided in financial statements, identity theft to insurance related fraud. Forensic accounting often deals with complicated and huge finance-based crimes or frauds. It is because of forensic accounting today that we are able to apprehend the crux of Ponzi Scheme by Bernie Madoff in a layman’s language.

Also, forensic accountants render services in identifying hidden property or assets in divorce cases, and solving cases involving contract breach, tort, breach of warranty, disputes related to valuation of business, differences concerning organization’s acquisition, etc. Forensic accounting assignments involve identifying construction claims, product liability based claims, or violations of patent. Besides, forensic accounting can be considered for knowing the economic status of the violation of an agreement that is incomplete.

Forensic accounting in the insurance industry

Insurance sector widely uses forensic accounting in its operations. A forensic accountant quantifies the economic claims arising due to an automobile collision, a case concerning medical misconduct, etc. In contrast to the adjuster approach, forensic accounting emphasizes on analysing the past information or data, and may miss out on some significant existing data that can have serious effects on the claim.

References for “Forensic Accounting”

https://en.wikipedia.org/wiki/Forensic_accounting

https://www.investopedia.com › Insights › Crime & Fraud

https://corporatefinanceinstitute.com › Resources › Knowledge › Accounting

https://mdd.com/what-is-forensic-accounting/

https://investinganswers.com/financial-dictionary/financial…/forensic-accounting-315…

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