Introduction
Forensic accounting and fraud investigation are important divisions in the field of accounting. Fraud and forensic accounting involves the detection of fraud in financial accounts and financial statements of companies, organizations, and businesses (Manning, 2010). It has been used to unearth corruption and fraud in some of the largest organizations in the world. In addition, it has been used to prevent individuals from committing fraud.
Forensic accounting is an adventurous branch of accounting that requires extensive skills and knowledge. On the other hand, fraud investigation requires courage and great financial acuity. Fraud and forensic accounting protects businesses from fraud, enhance the accuracy of financial statements, and help to predict bankruptcy (Manning, 2010). It is applied in several fields that include digital forensics, bankruptcy support, family law cases, insurance claims, and fund embezzlement investigations (Singleton and Singleton, 2010).
Career Requirements
Fraud and forensic accounting is a branch of accounting that deals with fraud detection in organizations and businesses. Some qualifications needed to practice in this field include excellent research skills, patience, and great communication and presentation skills (Silverstone and Sheetz, 2007). Research skills are necessary because unearthing fraud involves the collection, evaluation, and analysis of evidence from different sources (Silverstone and Sheetz, 2007). On the other hand, patience is needed because of the necessity to go through information collected to determine which can be used as evidence. This may take a long time hence the need for patience. After investigation, evidence is presented in a court of law. This requires good communication and presentation skills.
Individuals practicing fraud and forensics accounting should have quality analytical skills and knowledge (Manning, 2010). They enable accountants to evaluate information from different perspectives to avoid biases that may lead to wrong judgment. Currently, fraud and forensic accounting are playing a pivotal role in discouraging organizations and individuals from engaging in financial irregularities (Manning, 2010). Examples of financial irregularities include misrepresentation of annual reports, manipulation of financial statements and reports, and misrepresentation of profit margins. Professional requirements include high moral character, willingness to adhere to accounting ethics code and laws, knowledge in criminology and sociology, fraud law, and fraud investigation skills (Silverstone and Sheetz, 2007).
Roles and responsibilities
Fraud and forensic accountants combine knowledge from different fields. These include business information, accounting, and auditing principles, evidence gathering, data and information analysis, investigation methods, litigation processes, and finical reporting systems. They use information from these fields to detect, unearth, and present evidence of fraud to the public.
Forensic accountants are also actively involved in risk reduction. They perform this role by designing procedures that are used in statutory audits to detect fraud. As such, they act as advisors to audit committees, investment research advisors, and fraud avoidance analysts and advisors. All companies must have a fraud and forensics accountant as part of their team. Fraud and forensic accountants go beyond accounting standards and procedures to apply investigative techniques to identify fraud. This is aided by knowledge of human behavior patterns.
Application
Before the advent of this field of accounting, many businesses were making money by engaging in fraud. It augmented the law in streamlining business operations. The law is not sufficient to stop financial irregularities because it cannot identify fraud without the expertise of fraud and forensics accountants (Silverstone and Sheetz, 2007). Therefore, forensic accounting and the law are complementary entities. This field is very special because it requires exceptional skills and knowledge on financial matters.
The field helped to unearth financial irregularities in companies such as Enron, Global Crossing, and WorldCom (Manning, 2010). After the discovery of fraud in these companies, the field of accounting was never the same. The public lost confidence in accountants for failing to identify irregularities in the financial statements of these companies, which would have avoided their collapse. However, the scandals created job opportunities for accountants practicing in this field.
The Enron and WorldCom scandals led to the enactment of the Sarbanes-Oxley Act in the United States. The act was passed after these scandals undermined investor confidence. According to the act, professional auditors should not provide non-audit services to auditing firms or individual clients. Exemptions include tax and specialist management advice. The act affects the field of fraud and forensic accounting because accountants in this field cannot work for audit clients.
Forensic accountants have been collaborating with the Federal Bureau of investigations (FBI), Federal Trade Commission (FTC), Homeland Security, and Governmental Accountability Office (GAO) to handle white-collar crime (Singleton and Singleton, 2010). Other employers of fraud and forensic accountants include financial institutions such as banks, and divorce attorneys (Manning, 2010). Their role in fraud cases is to present evidence only. They do not determine whether fraud has happened because the final decision is made by a court of law.
Variation from traditional accounting
This field varies significantly from traditional accounting in many ways. First, traditional accounting focuses on identifying and preventing errors in financial statements and accounts (Singleton and Singleton, 2010). Prevention of financial errors involves utilizing the services of an internal control system. They identify errors by sampling financial transactions. In contrast, fraud and forensic accounting are involved with identifying financial irregularities in financial statements, reports, and accounts. Unlike traditional accounting, it evaluates and analyzes all transactions executed that might lead to the identification of fraud (Singleton and Singleton, 2010). They do not sample transactions but study all of them keenly.
Classical auditing involves separating entities to identify irregularities in statements and reports. In contrast, fraud and forensic accounting involve putting entities together to identify irregularities (Manning, 2010). It involves the use of both intuitive and deductive skills. However, it is more intuitive than deductive. Therefore, it works more effectively than traditional accounting.
It also encompasses the field of fraud management. This is mainly concerned with preventing fraud by identifying types of fraud, signs of fraud, prevention measures, and risk analysis (Singleton and Singleton, 2010). It also involves surveillance and monitoring of financial statements and reports to ensure that irregularities do not occur.
Conclusion
Forensic and fraud accounting emerged from a dire need for ways to identify and uncover fraud in businesses, companies, and organizations. It is a recognized profession in many countries of the world. It deals with the identification of irregularities in financial statements, reports, and accounts to identify fraud. Requirements for this field of accounting include knowledge in fraud law, criminology, sociology, and information and business systems. Fraud and forensic accounting protects businesses from fraud, enhance the accuracy of financial statements, and help to predict bankruptcy. it is a profession that is very useful in the modern business in which fraud is prevalent.
References
Manning, G 2010, Financial investigation and forensic accounting, second edition, Taylor & Francis, New York.
Silverstone, H & Sheetz, M 2007, Forensic accounting and fraud investigation for non-Experts, Wiley, New York.
Singleton, T & Singleton, A 2010, Fraud auditing and forensic accounting, John Wiley & Sons, New York.