What is Forensic Accounting?

Forensic accounting is the speciality practice area of accounting that describes

engagements, which result from actual or anticipated disputes or litigation. Forensic means
suitable for use in Court, and it is to that standard and potential outcome that forensic
accountants generally have to work. The forensic engagement is distinguished by engagement
objective, emphasis on gathering evidence, and the application of a variety of techniques often
custom-developed to the requirements of the specific engagement. Forensic accountants often
have to give expert evidence at the eventual trial.
Forensic accounting in its present state can be broadly classified into two categories
encompassing litigation support and investigative accounting. These two major categories form the
core around which other support services, that traditionally come within the sphere of investigative
services, revolve - including corporate intelligence and fraud investigation services. However, it
would also be remiss not to define what encompasses litigation support and investigative
accounting.
Litigation support - is the provision of assistance of an accounting nature in a matter involving
existing or pending litigation. It is primarily focused on issues relating to the quantification of
economic damages, which means a typical litigation support assignment would involve calculating
the economic loss or damage resulting from a breach of contract. However, it also extends to other
areas involving valuations, tracing assets, revenue recovery, accounting reconstruction and financial
analysis, to name a few. Litigation support also works closely with lawyers in matters involving, but
not limited to, contract disputes, insolvency litigation, insurance claims, royalty audits, shareholders
disputes and intellectual property claims.
Investigative accounting - in contrast, investigative accounting is concerned with investigations of a
criminal nature. A typical investigative accounting assignment could be one involving employee
fraud, securities fraud, insurance fraud, kickbacks and advance fee frauds. No doubt in many
assignments, both litigation support and investigative accounting services are required. In many
cases, the combination of these services will not be adequate to address the problem unless there
is in place an effective programme for fraud risk management and control. Creating an ethical work
environment with a vigorous anti-fraud culture, implemented seriously by senior management
through the promotion of a clear anti-fraud policy, is the only viable option if management is
serious about preventing or reducing the recurrence of corporate fraud in its various guises.