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 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

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.

Related Articles
  1. Professionals

    Career Advice: Accountant Vs. Financial Planner

    Identify the key differences between a career in accounting and financial planning, and learn how your personality dictates which is the better choice for you.
  2. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  3. Economics

    Calculating Days Working Capital

    A company’s days working capital ratio shows how many days it takes to convert working capital into revenue.
  4. Entrepreneurship

    Top 5 Most Successful Swedish Entrepreneurs

    Understand what makes Sweden a great place for entrepreneurship. Learn about five successful Swedish entrepreneurs who are making big impacts.
  5. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  6. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  7. Entrepreneurship

    Top 5 Most Successful Mexican Entrepreneurs

    Understand why so many socially conscious entrepreneurs have come out of Mexico. Learn about the top most successful Mexican entrepreneurs.
  8. Professionals

    Career Advice: Accountant Vs. Controller

    Learn about the differences between controllers and accountants, how the two are related and which is the best career choice for aspiring bookkeepers.
  9. Investing

    What is EBITA?

    EBITA measures a company’s full profitability before reducing it by interest, taxes and amortization considerations, and so is useful for calculating a company’s internal efficiency or profitability ...
  10. Professionals

    What is Cash Basis Accounting?

    Cash basis accounting recognizes revenues and expenses at the time cash is paid or received.
  1. Does working capital include inventory?

    A company's working capital includes inventory, and increases in inventory make working capital increase. Working capital ... Read Full Answer >>
  2. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  3. Are dividends considered an asset?

    Whether dividends paid on stock are considered an asset depends on which role you play in the investment: the issuing company ... Read Full Answer >>
  4. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  5. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>
  6. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!