Forensic accountants are financial detectives who audit, investigate and ascertain the accuracy of financial reporting documents, often in connection with anticipated or ongoing legal action. They are charged with ferreting out questionable financial data, chiefly for the purpose of investigating white-collar crime involving individuals as well as businesses of all sizes. They may work with businesses, nonprofit organizations (including government and law-enforcement agencies), estates, individuals and others who require forensic-accounting services.

Recent regulations have made forensic accountants widely sought after, and there are many career options available for those who are interested. Read on to find out if this career, which offers a high level of satisfaction and competitive compensation, is right for you. (Read more about corporate misdeeds in Cooking The Books 101 and Handcuffs And Smoking Guns: The Criminal Elements Of Wall Street.)

Overview Of Forensic Accounting: What The Work Entails
Forensic accountants may help with risk management and risk reduction through customized design of accounting and auditing systems and procedures. As a function of due diligence and investment analysis, they will advise on a wide variety of financial transactions:

The criminal activity uncovered may include fraud, embezzlement, money laundering, the concealment of debt, the concealment of assets or other fraudulent activities, or even financial crimes. Forensic accountants may be called upon to testify in court as expert witnesses in criminal and civil litigation and appear in pretrial depositions. (The article Common Clues Of Financial Statement Manipulation provides a brief overview of how to search for the "bloody" fingerprints in accounting crimes.)

Beyond their typical work in the business sector and the investigation of individuals' assets for various legal purposes, forensic accountants may also examine criminal enterprises to recover illegally obtained money or spot money laundering. In a government confiscation of assets in organized-crime cases, or in tax cases against individuals or companies, the work of a forensic accountant is indispensable.

Forensic accountants are also often Certified Public Accountants and Certified Fraud Examiners (CFE). A Certified Fraud Examiner is a specialist with extensive training in the prevention and deterrence of fraud and is required to pass a 500-question examination for certification that covers topics such as fraud examination and investigation techniques, financial transactions, criminology and ethics, and legal elements of fraud. Requirements for certification also include high moral character and strict professional and academic standards.

The CFE credential is conferred by the Association of Certified Fraud Examiners. The certification is recognized worldwide, and employers look for it when forensic accounting is needed in this area.

Both the forensic accountant and the CFE must have a comprehensive understanding of business information and all aspects of financial reporting, including:

  • The balance sheet showing a business's assets, liabilities and net equity at the time of the report
  • The income statement, which reports the profit or loss of a company over the reporting period
  • The statement of retained earnings, which reports dividends paid and other items credited to or charged against earnings. This data may also be included in the balance sheet.
  • The statement of cash flows showing the cash coming into the company (inflow) and going out of the company (outflow). Cash equivalents - short-term government bonds or Treasury bills, marketable securities and commercial paper or debt - also appear in the statement of cash flows.

Reported information in these documents must comply with generally accepted accounting principles (GAAP), which spell out accounting rules and procedures. (For related reading, check out our Advanced Financial Statement Analysis tutorial.)

Becoming A Forensic Accountant
Forensic accountants are required to have a bachelor's degree in any field, with a minimum of 24 credit hours in accounting. Employment opportunities and career advancement may be enhanced with a master's degree in accounting or in any of the business sciences. Entering the field of forensic accounting as a Certified Public Accountant is an additional advantage. As an adjunct to forensic accounting, career-minded accountants may also become a Certified Fraud Examiner. The CFE credential requires a course of study and an examination. (Read CPA, CFA Or CFP® – Pick Your Abbreviation Carefully for more on financial designations.)

Courses in forensic accounting are offered at many colleges and universities, other private institutions and through online educational programs. Scholarships, grants and subsidies for the education and training of forensic accountants are available from governmental and private sources. (For more ways to save money on tuition, read Pay For College Without Selling A Kidney.)

Job Opportunities, Career Paths And Compensation
Forensic accounting can be a fascinating and well- paid occupation. Beginning forensic accountants typically earn between $30,000 and $60,000 annually, while seasoned professionals with many years of experience may earn $150,000 annually or more. Salaries depend on experience, years in the profession and the type and size of the entity - a small business will most likely pay less than a major corporation, for example, and a nonprofit organization may pay less than a for-profit organization.

Location is also a factor in pay scales. Compensation in major cities with robust economies and pay scales will pay higher than the national average as opposed to similar work in ex-urban or rural areas. (Read Top 10 Cities For A Career In Finance before deciding where to work.)

New legislation, such as the Sarbanes-Oxley Act, has created many new job opportunities in this field. The Act, which requires stricter accounting and reporting standards for corporations, came in response to corporate and accounting scandals and seeks to promote fraud prevention, accountability and greater transparency. (Read more about the importance of this act to financial professionals in An Inside Look At Internal Auditors.)

The Journal of Forensic Accounting and ForensicAccounting.com provide information about potential job opportunities.

Potential places of employment include:

  • Law enforcement
  • State and local government (including government agencies such as the Internal Revenue Service, the Department of Defense, the Government Accountability Office, the FBI and the CIA)
  • Small and mid-size businesses
  • Major corporations
  • The nonprofit sector
  • Banking, brokerage, insurance and other financial-services industries
  • Private practice

Conclusion
Forensic accounting can be a fascinating, satisfying and well-compensated career. The field is expanding, and there are numerous job opportunities in the private sector, government and other nonprofit organizations. The work is beneficial to the community, and the profession is highly respected.

For related reading, see Accounting Not Just For Nerds Anymore.

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