Despite forensic accounting being around since the FBI started in 1908, many people are still unfamiliar with this field and ask the question, “What is a forensic accountant?” Once we determine what the two words mean independently, we can determine what forensic accountants do. In this particular instance, forensic means “suitable for court use” or “for legislative purposes” while accounting means “keeping or inspecting financial records”. Therefore, forensic accountants work at inspecting financial records for use in court or criminal cases. Here are a few of their job duties.
Examining Accounts & Documenting Reports
Forensic accountants may be hired to do routine work for a company just to ensure the accounting and bookkeeping system is as it should be, or they may be hired for a specific investigation. Regardless of the reason they’re hired, the first thing they do is examine the organization’s financial accounts and data. They also inspect and analyze the assets and liabilities of a business, always ensuring that the financial records are accurate and consistent.
The forensic accountant generally uses a four-step process that includes reviewing, analyzing, balancing and documenting. They go through the records, budgets and financial system with extensive detail. They then diligently inspect and review the company’s financial books and analyze the company’s profits and expenses to make sure all numbers match and are in compliance. If they’re satisfied that the accounting is correct, consistent and accurate, they document their information in a written report.
During analysis, accountants audit the entire financial department and all the financial books. Although forensic accountants have the skill and knowledge to do much of their work on their own, they may choose to perform interviews to gather additional information. This is often the case if they find a discrepancy in the numbers. Forensic accounting can be extremely time-consuming because they are always looking at different numbers for different types of errors or discrepancies. If the need arises, even after interviewing others, the accountants may choose to inspect and analyze the financial data a second or third time.
The Forensic CPA Society states that forensic accounting entails two areas: investigation and litigation support. The first steps of the process (examining, documenting and analyzing) are part of the investigation phase. During the forensic investigation, the forensic accountant must trace the money and identify all assets and expenses to determine if they’re truly assets and expenses or fraudulent entries. Any irregularities found are carefully traced to the right account or individual. This step is generally the last step before the information is turned over to the organization’s management or to the court system, which is part of the litigation support phase.
Presenting Findings to Court
When forensic accountants are asked to appear in court, their reports must be 100% accurate, which means reviewing them and identifying what analytical data will be used. Forensic accountants are often asked to provide expert testimony as evidence in court cases.
It’s been said that anyone who enjoys working with numbers will enjoy working as an accountant. With the exciting work that forensic accountants do, accounting may be even more stimulating and rewarding, particularly knowing they might be helping to solve crimes.