Forensic Accounting Fact v. Fiction

Forensic Accounting Fact v. Fiction

When people think of forensic accounting, often images of Ben Affleck in the 2016 movie “The Accountant”, or the television thriller “Breaking Bad”, where Saul Goodman consults with a forensic accountant named Francesca Liddy to assist his defense of “Heisenberg” come to mind. Although very entertaining, the realities of what forensic accounting is versus the fictional portrayals are quite different.

What is Forensic Accounting?

Forensic accounting is a specialized area of accounting that involves investigating financial discrepancies, deviations, and fraud. It is somewhat of an art as well as a science that combines traditional accounting, auditing, and investigative skills to examine financial statements and transactions, ultimately, to find the truth behind the numbers.

Forensic accounting is multidisciplinary. Forensic accounting and related litigation support cases often require much more than just a superior knowledge of accounting. To be successful a forensic accounting firm must have experts in many fields such as mathematics & statistics, computer and data forensics, the industries for which it serves, technical writers, data analysts, investigators and more. It is the bringing together of these disciplines to uncover and present the truth to the trier of fact that defines a superior forensic accounting firm.

What is the Difference Between Forensic Accounting and Traditional Accounting Services?

Few traditional accountants can provide professional forensic accounting services. Traditional accountants specialize in systematic recording, reporting, and analysis of financial transactions. Traditional accountants’ skills and expertise allow them to prepare financial statements for stakeholders, assist in financial planning and budgeting, conduct traditional financial statement audits, and prepare tax returns.

While most forensic accountants are trained in traditional accounting areas, they specialize in a vastly different method of financial review and analysis, many times going beyond the numbers to piece together a puzzle telling an especially important story. Although forensic accountants can provide traditional accounting services such as tax preparation; their skillsets enable them to identify financial abnormalities, conduct financial investigations, prepare expert reports, and testify about their findings in court.

Key Concepts of Forensic Accounting

There are several key areas of forensic accounting; here are five concepts to illustrate what services forensic accountants offer:

  • Litigation Support: Forensic accountants regularly provide support to attorneys in legal cases by preparing financial evidence and offering expert testimony. They work with legal teams to quantify damages, assess financial impacts, and uncover hidden assets.
  • Financial Analysis: Forensic accountants perform complex financial analysis to understand the nature and extent of financial issues. Forensic accountants often reconstruct financial records when necessary to provide clearer insights into financial situations. Forensic Accountants assist insurers with such things as business interruption calculations. They can also play a vital role in the merger and acquisition due diligence process.
  • Investigative Accounting: This involves detailed examination of financial data to uncover & investigate potential illegal activities such as embezzlement, money laundering, bribery & corruption, financial statement fraud, insurance fraud, and other financial concerns.
  • Internal Corporate Investigations: Forensic accountants are often skilled investigators. They may be experts at the investigative process from the planning to the reporting and follow up phases. In fact, some forensic accountants are skilled at interviewing suspects and witnesses as part of an investigation.
  • Compliance and Regulation: Forensic accountants monitor organizations compliance with regulatory requirements by conducting thorough audits, risk assessments, and reviews of financial practices. This helps in maintaining transparency and integrity in financial reporting.

Applications of Forensic Accounting

Forensic accounting is a profession that utilizes many disciplines. Although the application of forensic accounting work is somewhat broad, here are several common applications of forensic accounting work:

  • Investigations: Forensic accountants to investigate internal fraud, employee theft, and financial mismanagement.
  • Economic Damages: Forensic accountants calculate economic damages in cases of breach of contract, business interruption, personal injury claims, and other litigation scenarios.
  • Insurance Claims: Forensic accountants assist in processing insurance claims or resolving disputes by quantifying losses, identifying inconsistencies, discrepancies, and contract/policy violations.
  • Divorce Proceedings Disputes: Forensic accountants regularly work for attorneys in divorce cases to determine business values and uncover hidden assets.
  • Bankruptcy and Insolvency: Forensic accountants analyze financial records in bankruptcy cases to trace the movement of assets and identify questionable and fraudulent transfers.

When your company or client is facing a potential financial related concern, consider hiring an experienced forensic accountant or a firm with world-class skills and expertise. Contact the experts at North American Forensic Accounting LLC today to set up a consultation.