Forensic Accounting

Forensic Accounting Introduction A Forensic accountant assists an organization in unraveling issues surrounding financial problems. Mostly, his/her role involves analyzing financial information with the aim of unearthing fraud.Advertising We will write a custom research paper sample on Forensic Accounting specifically for you for only $16.05 $11/page Learn More After analyzing financial information, a forensic accountant is required to summarise and give a detailed report of his/her findings to the responsible party for implementation. Moreover, a forensic accountant keeps records of all the evidence gathered during his/her forensic investigation. This enables a party in a dispute to review and make decisions. Furthermore, the report lays the ground for in-court settlement if the parties fail to arbitrate among them. Thus, a forensic accountant helps organizations to avert fraudulent financial activities and institute appropriate controls aimed at preventing future frauds. Impo rtant skills for a Forensic Accountant A person seeking to be a forensic accountant should possess some essential skills to enable him/her to carry the job more efficiently. Analytical skills are one of the key skills demanded in this job. Carlino (2010) points out that analytical skills involve having the capacity to tie data and knowledge gathered from different areas together to come up with a clear interpretation. This plays a key role in enhancing the accuracy of financial information gathered and simplifies decision making during the judgment process.Advertising Looking for research paper on accounting? Let's see if we can help you! Get your first paper with 15% OFF Learn More Moreover, Carlino (2010) cites that analytical skills help an individual to identify strengths, opportunities, weaknesses and articulate principles strategically as they relate to financial matters. Also, a forensic accountant should be a person possessing persistence skills. Inve stigations involving financial statements take many hours or days to study and analyze to detect if the questionable adjustment has been made. Having persistence skills helps an individual to spot other details which might have been skipped during the investigation. Davis et al. (2010) explain that a forensic accountant, after carrying out investigations, he/she writes reports and acts as a witness in the court. Thus, he/she has to possess effective communication skills to articulate what is contained in the report. Furthermore, accounting involves analyzing complex financial transactions, statements, and account details; after analyzing, an individual has to submit the findings either orally or in a written report. Thus, effective communication skills are important in presenting a clear report to enable people with no or limited accounting knowledge to understand. A forensic accountant should be a conscious stickler to detail. This skill is important when the accountant is sifting through massive financial information (Kay and Gierlasinski, 2001). Being conscious of details provides an individual with new insight and can lead to uncovering new evidence that might lead to a sustained prosecution in the court.Advertising We will write a custom research paper sample on Forensic Accounting specifically for you for only $16.05 $11/page Learn More Davis et al. (2010) point out that a strong background in accounting is important in pursuing a career in forensic accounting. A bachelors degree in accounting or related discipline is a requisite. Also, membership to a certified professional body and experience are mandatory. However, individuals may gain forensic accounting skills on the job. Forensic Accountant and the Courtroom Environment When an organization suspects financial misappropriation in the organization, it deploys forensic investigators to begin determining the magnitude, and the nature of the fraud. The forensic role, in this ca se, is to come up with findings to enable the court to take further actions against the culprits. In the courts, a forensic accountant unravels the evidence linked to financial fraud by testifying. Thus, as mentioned earlier, testifying needs efficient skills in communication because the forensic accountant has to cross-examine the parties involved in the fraud. A forensic accountant acts as a detective in the court environment. For instance, he/she has to interview the people involved in the fraud and extract more information necessary to sustain a case. Legal Responsibility of a Forensic accountant in the Business In most cases, a forensic accountant is hired by organizations and law professionals among others to help unravel financial crimes and offer litigation support services. According to Kay and Gierlasinski (2001), the society bestows a big responsibility to a forensic accountant; he/she has to detect, prevent, investigate high profiled white collar frauds; computer scams, terrorist funding and, among others, forms of financial crimes.Advertising Looking for research paper on accounting? Let's see if we can help you! Get your first paper with 15% OFF Learn More In his/her line of duty, a forensic accountant helps to protect the economic security of the business by working hand in hand with the law enforcers. How does a forensic accountant achieve this in practice? Dark and Leauanae (2004) explain that a forensic accountant detects the organization financial losses in advance; this practice has made many organizations save money which would have been otherwise embezzled. The timely prevention of fraud has built the trust of investors as it motivates them to continue investing their funds in the business. Also, Kay and Gierlasinski (2001) show that the field of forensic accounting provides job security for many forensic accountants. Many organizations are springing up and coupled with rising financial frauds; the need for financial accountants is increasing. Dark and Leauanae (2004) indicate that in the U.S., the field of forensic accounting has fixed thousands of jobs that were not feasible before. This has secured the economy because more people can earn a living by being forensic accountants. A forensic accountant analyses financial statements and evidence used in legal matters. Thus, the evidence uncovered is used to identify fraudulent activities such as insurance fraud, money laundering, tax evasion and other embezzlements in organizations. Besides, the forensic services are significant in uncovering the activities of drug trafficking and hidden assets of couples entangled in divorce matters. A forensic accountant gathers and analyses financial data using mathematical and investigative skills. The findings arrived are used as evidence in a court of law to apprehend the culprits. Moreover, a forensic accountant has to support the evidence produced in the court. This is to enable the court to make a concise legal decision against a financial criminal. Cases of Forensic Accounting Case 1: A shareholder’s dilemma A 73-year-old father had just made a comeback to his construction company after the board handed h im the presidency (Barrett, 2013). Barely two years in the office, he realized that the former president, his 42-year-old son, had devised various schemes to defraud the company. Nevertheless, to say, the son had already misappropriated a sum of $11 million of his fathers 55% shares of the company while he was in the office. Moreover, he had allocated about $6 million a year (for his father’s retirement) and a further $6,500 monthly stipend to the ex-wife of the father (Barrett, 2013). Role of Forensic Accountant The forensic investigators were invited to carry out a thorough forensic audit on the deposed son. The forensic audit was divided into two parts: to validate the assertions of misfeasance by the father, prior and after his return, and to demonstrate that during the son’s tenure, there was no misappropriation of funds the father had purported in the lawsuit. Besides, the forensic accountants were also mandated to carry out the valuation of the business to certi fy the son had not run the company into bankruptcy. Results The evidence gathered by the forensic accountants was presented to the legal consultants of the father and was admitted without argument. The evidence laid a basis for the legal proceedings and as a review for tightening the internal controls of the company. Case 2: The Smoking Gun (Internal Coup) A medical company was preparing to make an initial public offer (IPO), and the prerequisites such as the patient appointments had gone well with doctors in several Southeastern states in the U.S. Besides, the products on offer had been tasted and ascertained to be of high quality and ready for the IPO unveiling (Barrett, 2013). However, to sabotage the process, two corporate officers and deep-pocket investors had devised a strategy to remove the financial and operating staff and replace them with others who could easily be compromised. Moreover, to complicate the process, the deep-pocket investors suppressed the release of funds u nless the officers were sacked or replaced (Barrett, 2013). The attorney of the Chief Executive Officer had no substantial evidence on the conspiracy among the three; hence, a forensic audit was needed. Role of Financial Accountant The financial accountants were invited to ascertain whether there was a conspiracy between the three groups mentioned. They were tasked with analyzing the company’s hard drive and the laptops used by the two doctors under investigation. Results After conducting a thorough forensic examination in the victims’ offices and the company’s server, there was no evidence linking the three to conspiracy. However, further investigation revealed that the three indeed communicated through personal emails hosted by Hotmail and Yahoo, but not the companys official emails, running through the company’s server. Reference List Barrett, W. C. (2013). My Life in Crime: Chronicles of a Forensic Accountant. Web. Carlino, B. (2010). Forensic Skills in High Demand. Web. Davis, C., Ogilby, S., Farrell, R. (2010). Survival of the Analytically Fit: The DNA of an Effective Forensic Accountant. Web. Derk, G. R. Leauanae J. L. (2004). Expert witness qualifications and selection, Journal of Financial Crime, 12 (2), 165 171. Kay, C.C. Gierlasinski, N. J. (2001). Forensic accounting skills: will supply finally catch up to demand?, Managerial Auditing Journal, 16(6), 378 – 382. Forensic Accounting The increase of the percentage related to the financial and corporate crimes influences the changes in the role of forensic accounting for businesses. Specific forensic accounting skills are necessary to control the situation within companies in order to avoid and predict financial crimes because of the spread of financial fraud as the negative tendency in business.Advertising We will write a custom essay sample on Forensic Accounting specifically for you for only $16.05 $11/page Learn More From this point, forensic accountants are professionals who are responsible for determining frauds and for predicting financial crimes or for resolving the problematic situations when it is necessary to investigate the definite financial case. As a result, there is a range of skills which forensic accountants should possess as well as a set of responsibilities associated with the legal context of the work of a forensic accountant. That is why, it is important to focus on the most important skills necessary for realizing the internal control within the company in relation to financial issues and to determine the legal responsibility of forensic accountants when they investigate the cases in companies or discuss them in the courtroom. The Forensic Accountants’ Most Important Skills Forensic accountants should be skillful investigators in order to discuss the case in detail and find the problem as well as its causes. Furthermore, this kind of internal control is almost impossible without the effective auditing techniques used by forensic accountants in order to resolve the problems and focus on the financial frauds. According to Davis, Farrell, and Ogilby, to discover and explore the evidences associated with fraud activities and misrepresentation, a successful forensic accountant needs to have such developed skills as the analytical thinking, the orientation on details and facts, effective communication skills, the ability to analyze and interp ret the information, and auditing skills (Davis, Farrell, Ogilby, 2009). The concentration on these five skills allows forensic accountants’ effective performance and investigation activity. Analytical skills are important to help forensic accountants explore the case aspects and analyze them effectively in order to provide the report on the fact of frauds and financial crimes. Forensic accountants receive the access to the financial records of the company, and their task is to interpret and analyze this information with references to their analytical skills (Crumbley, Heitger, Smith, 2007). Thus, the orientation on details and facts is important because this is a path to determining the problem and solution to it. The next significant factor is effective oral communication which is necessary to find the information and examine the details of the case with the help of employees and managers as the subjects (Skalak, Golden, Clayton, 2011). Forensic accountants work directly with financial records and reports that is why auditing skills are extremely necessary to perform the basic duties of an accountant and controller of the company’s financial activities.Advertising Looking for essay on accounting? Let's see if we can help you! Get your first paper with 15% OFF Learn More The Role of a Forensic Accountant in a Courtroom Working with such cases as bankruptcy, personal injury claims, and corporate crimes, forensic accountants often perform in a courtroom as witnesses in relation to those cases on which the financial investigation is necessary. If the case is discussed in the courtroom, the role of a forensic accountant is to provide the necessary evidences based on the investigative activities which were realized to determine frauds and problems in the company (Pagano Buckhoff, 2005). Forensic accountants can be discussed as experts in the cases of financial and corporate crimes because of their focus on investigation an d analysis of the internal information, and this role of witnesses and experts can be used in the courtroom, depending on the case. The Legal Responsibility of a Forensic Accountant Forensic accountants are responsible for examining and analyzing a lot of cases and issues associated with business, depending on the needs of the company at the moment. Moreover, these responsibilities can be discussed as legal because forensic accountants must release any information about frauds and financial crimes which is discovered during the investigation without references to the company’s progress and status. From this perspective, forensic accountants’ legal responsibility is closely associated with the concepts of objectivity and justice (Bressler, 2010). The role of forensic accountants is important in business because their participation in investigation should guarantee the transparency of information and the legal approach to resolving the problem. Forensic Accounting Cases The cases of Enron and WorldCom are two situations when forensic accountants provided the vital evidences in order to resolve the legal questions and uncover the fact of crimes. During the development of Enron scandal in 2001, it was found that the company’s managers hided the information about the company’s financial situation and provided shareholders with the false reports in order to attract more investments and cover the company’s bankruptcy. The price of shares increased irrelevantly to the real situation within Enron. The collapse of Enron is closely connected with auditing and investigative activities realized by forensic accountants in order to examine the case in detail when the fraud was discussed as the fact. Focusing on Enron case, it is important to state that the significant role of forensic accountants is based on their investigation and found evidences which were presented in the courtroom. These evidences are necessary to prove the guilt of man agers responsible for the collapse. The case of WorldCom reflects the similar situation when managers of the company hided the information about the real earnings and profits in order to realize their fraud activities and avoid bankruptcy. The non-reported sums of money were used to conceal shortages in revenues within the company. Forensic accountants were responsible for investigating the case during a long period of time to present the most objective reports in the courtroom.Advertising We will write a custom essay sample on Forensic Accounting specifically for you for only $16.05 $11/page Learn More This situation affected the development of the opinion that forensic accountants should work with agencies as experts permanently in order to discover and prevent corporate and financial crimes and regulate the activities within the business world. The reflection of Enron situation in the case of WorldCom in 2002 emphasized the role of forensic accountants i n the process of auditing and interpreting financial reports and records (Crumbley, Heitger, Smith, 2007; Pagano Buckhoff, 2005). Thus, importance of forensic accountants in business is stated today as the well-known and admitted idea because the roles performed by forensic accountants allow the positive and fair progress of companies with references to the ethical principles and legal norms. From this perspective, forensic accountants can be discussed as protectors of the companies and the business community’s interests and in relation to guaranteeing the fair business relations. They also provide the appropriate discussion and resolution of such cases as commercial damages and personal injury claims which are also examined by forensic accountants because of the involvement of legal and financial aspects. References Bressler, L. (2010). The role of forensic accountants in fraud investigations: Importance of attorney and judge’s perceptions. Web. Crumbley, D. L., Hei tger, L. E., Smith, G. S. (2007). Forensic and investigative accounting. London: CCH. Davis, C., Farrell, R., Ogilby, S. (2009). Characteristics and skills of the forensic accountant. Web. Pagano, W., Buckhoff, T. (2005). Expert witnessing in forensic accounting. R.T. Edwards, Inc.Advertising Looking for essay on accounting? Let's see if we can help you! Get your first paper with 15% OFF Learn More Skalak, S., Golden, T., Clayton, M. (2011). A guide to forensic accounting investigation. USA: John Wiley Sons.