Necessity is the mother of all inventions. Yes, it is the growing arena of business and surging number of white-collar crimes that have paved the way for the development of Forensic Accounting. According to AICPA, “Forensic Accounting is the application of accounting principles, theories and discipline to facts or hypothesis at issues in a legal dispute and encompasses every branch of accounting knowledge.” According to The Accountant’s Handbook on Fraud and Commercial Crime, Forensic Accounting is the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of the rules of evidence. Forensic Accounting borrows knowledge from Accounting, Finance, Law, Computerisation, Ethics, Criminology, etc. Investigation plays a pivotal role in Forensic Accounting. It is the flavour of investigation that demarcates it from the conventional accounting practices. In wide sense, it can be identified as integrity of accounting, auditing and investigative skills to secure a particular result.
Forensic accounting in Indian context
Maurice E. Peloubet coined the term Forensic Accounting in 1940.
In India Forensic Accounting is still in nascent stage and it becomes very difficult to find and retain the forensic accounting resources in India.
Worldwide we consider Sherlock Holmes to be the first Forensic Accountant; however the contribution of some of the historic characters in India cannot be ignored.
In India, Kautilya was the first person to mention the famous forty ways of embezzlement in his famous Kautilya Arthashastra during the ancient Mauryan Times. If we use his theories even today we can find that almost all the major failures in the corporate world of USA are the extended versions of what Kautilya had stated a few thousand years ago. Birbal a Scholar in the time of King Akbar used various tricks to investigate various crimes. The third scholar was Tenaliram who emphasized on the investigative techniques used to find the perpetrators.
After the Satyam Fiasco investors will be worried while investing in every company listed on the stock markets and there will be huge demand for the forensic accounting professionals.
Forensic accounting has come to light in view of increased in financial frauds popularly known as white collar crimes. This profile is currently unknown in India; however the future of forensic accounting in India is poised to grow.
Forensic Accounting and Auditors
Forensic accounting simply means accounting that could be used in a court of law and not accounting just for the purpose of auditing; this is because you can be the best auditor and yet be the worst forensic accountant.
E.g. when you go for an audit and you ask for an invoice and the auditee give it to you, as an auditor you will not ask further questions, but a forensic accounting expert would, like; did the invoice sent by mail or delivered by hand? Now, if you were the one conducting the investigation as a forensic accounting expert, you can tell the source of the invoice the moment you were handed the invoice, so if you ask if the invoice was posted by mail and the auditee gave you a crisp unfolded invoice, you already know it is not posted. Invoices are mostly folded, must show creases, or have stapler’s sign on them. Now if that invoice became evidence in a matter in the court you can controvert its origin if the other party in the matter claims that it was sent by mail you can affirm that the invoice was not delivered by mail. It is all about forensic style of gathering evidence; on the other hand, auditors are not required by law to go beyond what is asked.
The Satyam scam is prompting auditors to take up courses in ‘fraud detection’ instead of remaining confined to ‘fault finding from books of companies.
Does that mean that an audited report cannot be used in a court of law?
It can be used in a court of law, but it...