Forensic Accounting FAQs

What is forensic accounting?

Forensic accounting is a specialty practice area of accountancy that is used in a court of law. Forensic accounting uses accounting, auditing and investigative skills to analyse financial information and assist in legal matters. It’s essentially a combination of accountancy and detective work to present the facts, uncover fraud, and assist in resolving legal disputes.

There are two main areas of forensic accounting; litigation support and investigation. Litigation involves the factual presentation of financial information relating to pending or existing legal disputes. Forensic accounting can help to resolve disputes before they reach court. If the case does reach the courtroom, a forensic accountant can testify as an expert witness.

Investigation determines whether fraud, theft, or falsification of financial statements has occurred. This can include insurance fraud and civil matters, such as hidden assets in a divorce case.

What does forensic accounting actually involve?

Forensic accountants draw from many areas of expertise, including accounting, auditing, taxation, and information technology to assist in legal matters. A forensic accountant will seek to determine what events took place from a financial standpoint. Forensic accounting teams will include expert testifiers, witness interviewers, data mining and computer forensic specialists, fraud examiners, and specialist professionals to document the facts.

What types of legal dispute do forensic accountants become involved in?

Forensic accountants investigate and document allegations of financial fraud, professional negligence, embezzlement, shareholder disputes, breaches of contract, Stock Market manipulations, and insurance fraud, as well as bankruptcy fraud and preferential payments. Forensic accounting is appropriate for any illegal financial activity, and is also called upon in civil cases, such as matrimonial disputes. Any dispute or prosecution in a court of law involving financial ambiguity or fraud will require the expertise of a forensic accountant.

What is the difference between auditing and forensic accounting?

An audit is designed to provide confidence in whether accounts show a true and fair view of the financial position and performance of a company within a specified period. This is achieved by undertaking sample checks on the transactions and balances that make up the accounts, and is subject to the concept of materiality which is a lower threshold where the values under scrutiny are considered too small to have an influence on the overall stated position of a set of accounts.

In Forensic accounting, there is already suspicion that errors exist in the presented accounts, so the work undertaken relies on far higher samples, and a substantive review of transactions regardless of value. This means a forensic review of accounts will concentrate on significantly more detail in order to obtain evidence of wrongdoing. The purpose of forensic accounting is to uncover any possible misappropriation, misstatement or fraud. Forensic accounting seeks to provide evidence for use in a court of law and so requires specialist legal documentation.

When should I consult a forensic accountant?

Forensic accountants are consulted for a wide range of legal disputes and suspected financial fraud. If you suspect fraud or theft within your business, or surrounding a civil matter, you may wish to consult a forensic accountant to investigate for you.

What should I do if I suspect financial fraud in my business?

If you suspect fraud, theft or wrong-doing in your business, the best way forward is contact your accountant who will be able to help you substantiate your suspicions and take the appropriate action. Fraud or theft tends to be committed by trusted employees with access to the most company information.

If an internal investigation is required you will need the help of a forensic accountant. If you suspect fraud or theft in your business, try not to overreact. It’s equally important not to sweep it under the carpet and ignore it. Be discreet when seeking advice as the perpetrator may destroy evidence or try to cover their tracks. An IT consultant will be able to discreetly copy the suspect’s hard drive. Ensure all of your financial information is backed-up and work with your accountants and other professional advisors to reduce the disruption to your business.