What is 'Forensic Accounting'

Forensic accounting utilizes accounting, auditing and investigative skills to conduct an examination into a company's financial statements. Thus, forensic accounting provides an accounting analysis suitable for court. Forensic accountants are trained to look beyond the numbers and deal with the business reality of a situation. They are frequently used in fraud cases.

BREAKING DOWN 'Forensic Accounting'

Forensic accountants analyze, interpret and summarize complex financial and business matters. They may be employed by insurance companies, banks, police forces, government agencies or public accounting firms. Forensic accountants compile financial evidence, develop computer applications to manage the information collected and communicate their findings in the form of reports or presentations.

Along with testifying in court, a forensic accountant may be asked to prepare visual aids to support trial evidence. For business investigations, forensic accounting entails the use of tracing funds, asset identification, asset recovery and due diligence reviews. Forensic accountants may seek out additional training in alternative dispute resolution (ADR) due to their high involvement in legal issues and familiarity with the judicial system.

Litigation Support

Forensic accounting is utilized in litigation when quantification of damages is needed. Parties involved in legal disputes use the quantifications to assist in resolving disputes via settlements or court decisions. For example, this may arise due to compensation and benefit disputes. The forensic accountant may be utilized as an expert witness if the dispute escalates to a court decision.

Investigation

Forensic accounting also encompasses the determination of whether criminal matters occurred. Such crimes may include employee theft, securities fraud, falsification of financial statement information, identify theft or insurance fraud. Forensic accountants may assist in searching for hidden assets in divorce cases or provide their services for other civil matters such as breach of contracts, tort, disagreements relating to company acquisitions, breaches of warranty or business valuation disputes.

Forensic accounting assignments include investigating construction claims, expropriations, product liability claims or trademark or patent infringements. Forensic accounting can be used to determine the economic results of the breach of a nondisclosure or noncompetition agreement.

Forensic Accounting in the Insurance Industry

A forensic accountant may be asked to quantify the economic damages arising from a vehicle accident or a case of medical malpractice. The accountant must be knowledgeable about the legislative process relating to these cases. Forensic accounting encompasses the review of insurance policies to determine coverage issues and methods of calculating potential losses. Forensic accounting may be utilized for either the insured or insurer’s case.

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