There is no single definition of forensic accounting, but what everyone agrees on is that forensic accounting involves applying accounting concepts and techniques to legal issues. It is a specialty that requires the integration of investigative, accounting and auditing skills.
According to Dee Studler, founder of SDC CPAs, a global investigation and forensic accounting firm, forensic accounting is the use of accounting skills in potential or actual civil or criminal disputes, including generally accepted accounting and auditing principles; determining losses of profit, revenue, property, or damage, valuation of internal controls, fraud, and anything else that requires the inclusion of accounting expertise in the legal system.
Dee Studler is a Certified Public Accountant and Certified Forensic Accountant who specializes in providing investigation, verification and evaluation of fidelity and crime claims for-profit, non-profit, bank, credit union, financial institution and governmental entities.
As Mrs Studler explains, the most common areas of accounting fraud are:
- Non-compliance with the law to show the desired results
- Falsification of data and accounting documents
- Depicting fictitious events
- Deliberate distortion of business events
- Concealment of theft of money and other property.
In accordance with the essence of forensic accounting described above, authorized fraud investigators or forensic accountants, such as Dee Studler, investigate and document financial fraud and “white collar crime” such as manipulation. They also assist attorneys, courts, regulatory bodies and agencies in investigating financial fraud.
The forensic accountant is not concerned with financial statements as such, as auditors do, but his or her focus is on evaluating transactions, people or business units to determine if there are indications of fraud that need to be investigated more deeply.
The main differences between an independent auditor and a forensic accountant are:
- The independent auditor expresses an opinion on the true and fair presentation of the financial statements; the forensic accountant identifies and detects criminal activity in the financial statements and operations;
- An independent auditor uses the technique of sampling and performing control tests; a forensic accountant performs a substantive, in-depth audit of all selected transactions in suspicious areas of business;
- An independent auditor examines financial statements and transactions for a specified period, usually one year, and the forensic accountant has no such restrictions, that is, examines suspicious transactions from the beginning, “from the root”, regardless of the date of the event.
- Independent auditor expresses opinion with or without reservation, and forensic accountant expresses opinion regarding place, time of crime, calculates damages and names perpetrators.