“Auditor should be a watchdog and not be the bloodhound”.
It’s 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 banks, corporate entities, or from any other organization’s financial records. They hound for conclusive evidence. External Auditors find out the deliberate misstatements only but the Forensic Accountants find out the misstatements deliberately. External auditors look at the numbers but forensic auditors look beyond the numbers.
Defining Forensic Accounting
The forensic accountant takes a more proactive, skeptical approach in examining the books of Accounting. They do not assume management integrity (if they can assume so then there is no need for their appointment) show less concern for the arithmetical accuracy have nothing to do with the Accounting or Assurance standards but are keen on exposing any possibility of fraud.
The 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 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. The perfect combination of the Pizza base, Cheese spread, and good toppings makes the pizza delicious and the Forensic Auditor the perfect. It’s a combination that will be in demand for as long as human nature exists.
In my opinion, defining forensic accounting was important from an India perspective. There are three skillsets mentioned in historical documents while defining forensic accounting. Accounting, Auditing, and Investigation are these skill sets. But we are missing out on technology understanding. As we move ahead in next decade, technology will be the key skill set for forensic accountants.
Skills of forensic accountants
Forensic accounting is the application of 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 the administrative proceeding.
In addition to the specialized knowledge about the techniques of finding out the frauds, one needs patience and an analytical mindset. One has to look beyond the numbers and grasp the substance of the situation. It is the work of the intelligent accountants.
He needs to question seemingly benign documents and look for inconsistencies. He searches for evidence of criminal conduct or assists in the determination of, or rebuttal of, claimed damages.
He 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 person’s chances of success in life, thus increasing a person’s worth in today’s society.
History of Forensic Accountants
Sherlock Holmes was probably the most famous practitioner being the Forensic Chemist. But the Kautilya was the first economist who openly recognized the need of forensic accountants. He mentioned forty ways of embezzlement centuries ago.
The Opportunities for Forensic Accountants are growing at a rapid speed. The collapse of Enron and the WTC twin towers have blessed American Forensic Accountants with opportunities.
In India, the formation of the Serious Fraud Investigation Office is a landmark creation for 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, Forensic Accountants are the most required in the wake of the growing fraud. Law enforcement officers are the experts in analyzing fingerprints and Narcotics but what about the digital evidence analysis? Very few know about it.
It’s a thrill of the 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.
India and Forensic Accounting
This statement is enough for the chartered accountants in India to foray into this field. It is a 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 the Indiaforensic community is gathering pace.
The growing number of regulators and administrative agencies will demand the services like 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 the 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 eyeshade.
