Forensic accounting is a unique field that is continuously growing due to the increase in fraud and financial crimes. If you suspect that criminal activity is leading to losses for your business, a forensic accountant can dig through your individual or company’s information help you solve the mystery. Keep reading to learn more about forensic accounting and how these uniquely skilled professionals operate between the legal and financial worlds.
What Is Forensic Accounting?
Forensic accounting involves the use of accounting and auditing expertise to scrutinize the finances of an individual or business. Forensic accountants are trained to conduct in-depth accounting research and assist a business or individual in determining whether they have been impacted by financial misconduct such as fraud, skimming, or embezzlement. A forensic accountant can also offer investigative assistance in a variety of additional legal and financial matters, such as:
- Financial theft by employees, customers, or outsiders
- Securities fraud
- Money laundering
- Tax evasion or fraud
- Mergers and acquisitions
- Corporate valuation disputes
- Divorce proceedings
- Contract disputes
- Inheritance disputes
Forensic accounting differs from customary accounting because forensic accountants utilize a combination of accounting expertise, legal knowledge, and investigative skills to discover and explain financial crimes. They can help businesses prevent or recoup losses due to internal fraud, and they often present their findings in a court of law.
What Does a Forensic Accountant Do?
The main aims of forensic accounting are to uncover financial evidence that assists in resolving business or legal disputes and/or demonstrates that a financial crime has occurred. Apart from proving whether financial irregularities have occurred, forensic accounting seeks to identify the perpetrators involved so legal action may be taken against them. Forensic accountants are mainly employed in organizations such as government agencies, banks, public accounting firms, police forces, and insurance companies.
In the context of a legal investigation, a forensic accountant will do the following:
- Prove whether an individual or business has suffered financial loss due to criminal activity
- Identify perpetrators, their motives, and their techniques
- Prove beyond doubt the involvement of the alleged culprits
Forensic accounting objectives can also extend beyond identifying fraud. Forensic accountants can also assist with matters such as computing the loss of profits or earnings caused by personal injury owing to negligence. Additionally, forensic accountants can also help in resolving business disputes such as clashes between shareholders or business valuation disagreements.
Protect Your Business by Hiring Forensic Accountants
Understanding the aspects of forensic accounting can help organizations and individuals recognize when it’s time to hire an expert. About half of all financial fraud cases happen due to weak internal controls. You can hire an accountant to review your business’ internal controls and recommend ways of protecting your finances better. With a small cost of prevention, you can guard your business or individual finances against the high cost of a forensic investigation.