Forensic accounting is a science that deals with the application of accounting facts gathered through auditing methods and procedures to legal problems usually dealing with financial and valuation issues (Grippo, 2003). Forensic accounting investigates an allegation where the results are presented in a legal setting. The increasing complexity of the business environment and the growing number of business-related investigations have created a demand for forensic accounting professionals to assist in the investigation of financial and business-related issues. Forensic professionals provide financial, economic and statistical services to companies and their legal advisers involved in litigation, arbitration or mediation, and regulatory investigations or other regulatory issues. Forensic accounting is the application of financial, accounting and investigative skills – to a standard acceptable by the courts – to address issues in dispute in the context of civil and criminal litigation (Financial private eyes see; rapid growth in demand, 2004). Ultimately, forensic accounting involves looking beyond the numbers and grasping the substance of situations (Forensic Accounting: The Science Behind CSI, 2008).
Forensic accounting encompasses two main areas: litigation support and investigative services. Litigation support represents the factual presentation of economic issues related to existing or pending litigation. In this capacity, the forensic accountant quantifies damages sustained by parties involved in legal disputes and can assist in resolving disputes. Some examples of litigation support include business valuations, economic damages, testimony as expert witness future earnings evaluation and income and expense analysis.
Investigation is the act of determining whether criminal matters such as employee theft, securities fraud, identify theft, and insurance fraud has occurred. A forensic accountant may recommend actions that can be taken to minimize future risk of loss. Investigation may also occur in civil matters. Other examples of investigation include matrimonial disputes. It is common for the forensic accounting to provide courtroom testimony in these cases.
Forensic accounting is used in a variety of situations including: business valuations, divorce proceedings and matrimonial disputes, personal injury and fatal accident claims, professional negligence, insurance claim evaluations, arbitration, partnership and corporation disputes, shareholder disputes, civil and criminal actions concerning fraud and financial irregularities and fraud and white-collar crime investigations
At O. J. Simpson’s civil trial, forensic accountants testified as to the worth of O. J. The final damage awards were based upon this testimony. According to an article in the New York Times, forensic accountants are investigative number-crunchers who assess the value of privately held corporations and family businesses, and ferrets out spouses’ hidden assets (Crumbley, 2001). During the past few years in New York, accounting sleuths have become increasingly engaged in the thriving industry of divorce. With white collar crime, insurance scams, the federal savings and loan debacle, and computer crime reaching $3 billion per year, there is a need for a new breed of forensic accountants.
Forensic accounting work is performed by IRS and FBI agents. The FBI has twice as many...