What is Forensic Accounting ?
should be watchdog and not be the bloodhoundĒ. Itís a
good quote that every auditor should know. This quote makes
the definition of Forensic accountants even more simple.
The forensic Accountant is a bloodhound of Bookkeeping. These
bloodhounds sniff out fraud and criminal transactions in
bank, corporate entity or from any other organizationís
hound for the conclusive evidences. External Auditors find
out the deliberate misstatements only but the Forensic
Accountants find out the misstatements deliberately.
External auditors look at the numbers but the forensic
auditors look beyond the numbers.
Forensic accountant takes a more
proactive, skeptical approach in examining the books of
Accounting. They make no assumption of management integrity
(if they can assume so then there is no need for their
appointment) show less concerns for the arithmetical
accuracy have nothing to do with the Accounting or Assurance
standards but are keen in exposing any possibility of fraud.
traits of the forensic Accountants could be compared to well
bake Pizza. The
base of forensic accounting is Accounting knowledge. Size
and the extent of baking decide the quality of the Pizza. A
middle layer is a dispersed knowledge of auditing, internal
controls, risk assessment and fraud detection. It is like
the spread of the cheese in Pizza. The toppings of this
Pizza are a basic understanding of the legal environment.
The legal environment is essential in order to support the
litigations. The Cherry on the toppings of the pizza is a
strong set of communication skills, both written and oral.
It is just the beautification part. Perfect combination of
the Pizza base, Cheese spread and good toppings makes the
pizza delicious and the Forensic Auditor the perfect. Itís
a combination that will be in demand for as long as human
accounting is the application of a specialized knowledge and
specific skills to stumble upon the evidence of economic
transactions. The job demands reporting, where the
accountability of the fraud is established and the report is
considered as evidence in the court of law or in the
addition to the specialized knowledge about the techniques
of finding out the frauds one needs patience and analytical
mindset. One has to look beyond the numbers and grasp the
substance of the situation. It is basically the work of the
He needs to question seemingly benign document and look for
inconsistencies. He searches for evidence of criminal
conduct or assists in the determination of, or rebuttal of,
requires the ability to think. Far
from being an ability that is specific to success in any
particular field, developing the ability to think enhances a
personís chances of success in life, thus increasing a
personís worth in todayís society.
Holmes was probably the most famous practitioner being the
Forensic Chemist. But the Kautilya was the first economist
who openly recognized the need of the forensic accountants.
He mentioned forty ways of embezzlement centuries ago.
The Opportunities for the
Forensic Accountants are growing at the rapid speed.
Collapse of Enron and WTC twin towers have blessed the
American Forensic Accountants with the opportunities.
In India the formation of Serious Fraud Investigation Office
is the landmark creation for the Forensic Accountants.
Growing cyber crimes, failure of regulators to track the
security scams, series of co-operative banks bursting - all
are pinpointing the need of forensic accounting,
irrespective of whether we understand the need or not.
In the Indian context the Forensic Accountants are the most
required in the wake of the growing frauds. The law
enforcement officers are the experts of analyzing the
fingerprints and the Narcotics but what about the digital
evidence analysis. Very few know about it.
Itís a thrill of hunt. Maurice E. Peloubet who coined the
term Forensic Accountant in 1946 said that the preparation
of financial statements has some but not all of the
characteristics of forensic accounting.
This statement is enough for the chartered accountants in
India to foray in this field. It is new child on the block.
Both CBI and CID cops do the forensic accounting work. Until
recently there was no separate community in India. But now
movement of Indiaforensic community is gathering the pace.
The growing number of regulator and the administrative
agencies will demand the services in the nature of forensic
practice. Chartered Accountants are going to find themselves
more involved in what is essentially a type of forensic
practice. The changing nature of the Accounting and Auditing
& assurance standards also confirms this.
Nearly 40 percent of the top 100 American accounting firms
are expanding their forensics and fraud services, according
to Accounting Today. If this data is of some sense to Indian
scenario then the day is not far away when forensic practice
will contribute maximum to the total revenue of the Indian
CA firm. Far from the humdrum stereotypic accountant your
mind might have initially conjured, the forensic accounting
professional is more of a private investigator with a
financial sixth sense than the bookkeeper with a green
Authored By: CA Mayur Joshi