FORENSIC

ACCOUNTING
WHAT IS FORENSIC
ACCOUNTING ?
What is forensic accounting?

 Forensic Accounting is the specialty practice area of

accounting that describes engagements that result from actual
or anticipated disputes or litigation.
 Forensic 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
administrative proceeding.
 Forensic accounting is accounting that is suitable for legal
review, offering the highest level of assurance, and including
the now generally accepted connotation of having been arrived
at in a scientific fashion.
features of forensic
accounting
 features of forensic accounting

 Forensic accounting is the practice of utilizing

accounting, auditing, and investigative skills to
assist in legal matters.
 Kautilya was the first economist who openly
recognized the need of the forensic accountants.
He mentioned forty ways of embezzlement
centuries ago
 It encompasses 2 main areas – litigation support,
investigation, and dispute resolution.
Features contd......

 Litigation support represents the factual

presentation of economic issues related to existing or
pending litigation. In this capacity, the forensic
accounting professional quantifies damages sustained
by parties involved in legal disputes and can assist in
resolving disputes, even before they reach the
courtroom.
 Investigation is the act of determining whether
criminal matters such as employee theft, securities
fraud (including falsification of financial statements),
identity theft, and insurance fraud have occurred. As
part of the forensic accountant’s work, he or she may
recommend actions that can be taken to minimize
future risk of loss.
Features contd......

 Forensic accounting involves looking beyond the

numbers and grasping the substance of situations. It’s
more than accounting…more than detective work…it’s
a combination that will be in demand for as long as
human nature exists.
 Forensic accounting requires the most important
quality a person can possess: 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.
NEED FOR FORENSIC
ACCOUNTING
NEED FOR FORENSIC ACCOUNTING
 Recent major corporate scandals have prompted business
owners to turn to Forensic Accountants for proactive fraud
checkups.
 CEOs must now certify that their financial statements are
faithful representations of the financial position and results of
operations of their companies and rely more heavily on
internal controls to detect any misstatement that would
otherwise be contained in these financials. Thus, publicly
held companies are likely to see the necessity for forensic
accounting as a part of a strong internal control effort to
comply with governmental and market demands for accurate
reporting.
 Forensic accountants who work for private companies help
prevent and detect misuse of company resource.
 Who needs Forensic
Accountants?
 Forensic Accountants work in most major
accounting firms and are needed for investigating
mergers and acquisitions, and in tax
investigations, economic crime investigations, all
kinds of civil litigation support, specialized audits,
and even in terrorist investigations. Forensic
Accountants work throughout the business world,
in public accounting, corporations, and in all
branches of government (from the FBI and CIA to
the offices of the local authorities). Forensic
Accounting firms are everywhere
Categories
 Categories
 Engagements relating to civil disputes may
fall into several categories.

- Economic damages.

-Tort or Breach of contract.

- Earn outs or breaches of warranties.

-Business valuation.
 Categories
 Economic damages:- In law, economic damages
refers to the money paid or awarded to a claimant,
purser or plantiff following a successful claim in a civil
action.
 Tort:- Tort law is the name given to a body of law that
creates, and provides remedies for, civil wrongs that
do not arise out of contractual duties.
 Breach of contract:-Breach of contract is a legal
concept in which a binding agreement or bargained-
for exchange is not honored by one or more of the
parties to the contract by non-performance or
interference with the other party's performance.
 Categories
 Earn outs:- Earn out is a phrase used by venture
capitalists to describe a formula by which management
of a target company earn a bigger share of the target's
share capital by achieving results above pre-determined
levels.
 Breaches of Warranties:- A warranty is violated
when the promise is broken; when goods are not as
should be expected, at the time the sale occurs, whether
or not the defect is apparent
 Business valuation:- It is a process and a set of
procedures used to determine the economic
value of an owner’s interest in a business
INVESTIGATION
 INVESTIGATION
 The fraud the specialists are looking for is usually one
of two general types: financial statement fraud or
theft of assets (these two types can co-exist in the
situation in which management has taken assets and
misstated financial statements to cover up the
defalcation).

 The occupational fraud committed by employees

usually involves the theft of assets.
Embezzlement has been the most often committed
fraud for the last 30 years. Employees may be
involved in kickback schemes, identity theft, or
conversion of corporate assets for personal use.
 INVESTIGATION

 To uncover financial statement fraud, the forensic

accountant often analyzes the financial statements by
using ratio analysis and certain data-mining
techniques such as Benford’s Law, a procedure used
to determine the likelihood that data have been
altered.
 Other procedures performed include inspection of
documents and records and the conduct of
interviews with persons who would have knowledge
about any fraud that’s occurred.
 INVESTIGATION
 The forensic accountant couples observation of
the suspected employees with physical
examination of assets, invigilation, inspection of
documents, and interviews of those involved.
 Experience on these types of engagements enables
the forensic accountant to offer suggestions as to
internal controls that owners could implement to
reduce the likelihood of fraud.
FORENSIC ACCOUNTING IN INDIA
FORENSIC ACCOUNTING IN INDIA
 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.
 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
 Chartered Accountants are going to find themselves more
involved in what is essentially a type of forensic practice .
Forensic Accountants
 Forensic Accountants
 Forensic Accountants may be involved in recovering
proceeds of crime and in relation to confiscation
proceedings concerning actual or assumed proceeds of
crime or money laundering
 Some Forensic Accountants are also Certified Fraud
Examiners and/or Certified Public Accountants
 Forensic Accountants utilize an understanding of
business information and financial reporting systems,
accounting and auditing standards and procedures,
evidence gathering and investigative techniques, and
litigation processes and procedures to perform their
work.
 traits of the forensic Accountants
 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
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. It’s a combination that will be
in demand for as long as human nature exists
Forensic accounting as
career
 Forensic accounting as career
 Forensic Accounting is the fastest growing area of
Accounting today!
 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.
 Since 9/11 Forensic Accountants have been
playing a major role in tracing terrorists around
the world.
NE QUESTIONS…?
THANK YOU