What Is Forensic Accounting?
Let me explain forensic accounting to you directly: it's the use of accounting, auditing, and investigative skills to scrutinize the finances of individuals or businesses. As a forensic accountant, you're typically a CPA who hunts for evidence of crimes, and you often work for insurance companies, financial institutions, or law enforcement agencies.
You analyze financial records that could serve as legal evidence and frequently testify in court as an expert witness. In my experience, this involves cases like fraud and embezzlement, where you break down the details of a financial crime for the court.
Key Takeaways
- Forensic accounting merges accounting and investigative methods to uncover financial crimes.
- Forensic accountants explain financial crimes in court settings.
- They trace funds, identify assets, handle asset recovery, and conduct due diligence reviews.
- The insurance industry relies on forensic accounting to determine damages from claims.
Career as a Forensic Accountant
If you're considering a career in this field, know that forensic accountants like me analyze, interpret, and summarize complex financial data. We compile financial evidence, develop computer applications to manage the collected information, and communicate findings through reports or presentations.
Your tasks would include tracing funds, identifying assets, recovering assets, and performing due diligence reviews. You might also train in alternative dispute resolution (ADR) because of the deep involvement in legal issues and familiarity with the judicial system.
Litigation Support
In litigation, forensic accounting comes into play when you need to quantify damages. Parties in legal disputes use our findings to settle matters or support court decisions, such as in compensation or benefit disputes. If the case goes to court, the forensic accountant serves as an expert witness.
Criminal Investigation
For criminal investigations, we determine if a crime occurred and evaluate the likelihood of criminal intent. This covers crimes like employee theft, securities fraud, falsification of financial statements, identity theft, or insurance fraud.
Take the Bernie Madoff Ponzi scheme as an example: forensic accountants dissected it and made it understandable for the court. We also search for hidden assets in divorce cases, investigate contract breaches, torts, or disputes in company acquisitions like warranty breaches or business valuation issues.
Additionally, you might see us handling construction claims, expropriations, product liability claims, trademark or patent infringements, or assessing economic damages from breaching nondisclosure agreements.
Insurance Industry
The insurance industry routinely employs forensic accounting. A forensic accountant might quantify economic damages from a vehicle accident, medical malpractice, or other claims. One issue with this approach versus using an adjuster is that forensic accounting focuses on historical data and could miss current information that alters claim assumptions.
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