Forensic accounting, forensic accountancy, or financial forensics is the specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation. “Forensic” means “suitable for use in a court of law”, and it is to that standard and potential outcome that forensic accountants generally have to work. It uses accounting, auditing, and investigative skills to run investigations for any cases of theft and fraud. Forensic accountants, also referred to as forensic auditors or investigative auditors, often have to give expert evidence at the eventual trial. Their job is to catch the criminals of theft and fraud who appear at firms. All of the larger accounting firms, as well as many medium-sized and boutique firms and various police and government agencies, have specialist forensic accounting departments. Within these groups, there may be further sub-specializations: some forensic accountants may, for example, just specialize in insurance claims, personal injury claims, fraud, anti-money-laundering, construction, or royalty audits. Forensic accounting is defined as “the application of investigative and analytical skills for the purpose of resolving financial issues in a manner that meets standards required by courts of law. Forensic accountants apply special skills in accounting, auditing, finance, quantitative methods, certain areas of the law, research, and investigative skills to collect, analyze and evaluate evidential matter and to interpret and communicate findings.
Forensic Accounting Categories
Engagements relating to civil disputes may fall into several categories: calculating and quantifying losses and economic damages, whether suffered through tort or breach of contract; disagreements relating to company acquisitions—perhaps earn outs or breaches of warranties; and business valuation. Forensic accountants often assist in professional negligence claims where they are assessing and commenting on the work of other professionals.
Forensic Accountants are also engaged in marital and family law matters for the purpose of analyzing lifestyle for spousal support purposes, determining income available for child support, and equitable distribution.
Engagements relating to criminal matters typically arise in the aftermath of fraud. They frequently involve the assessment of accounting systems and accounts presentation—in essence assessing if the numbers reflect reality.
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