forensic accounting

forensic accounting

The Importance of Forensic Accounting in Modern Business

1. Introduction

Modern business relies heavily on accounting for success. Accounting to a business is like programming to a computer. In the same way that a computer is programmed to perform tasks accurately and efficiently, all of a business’s financial activities should be programmed to generate accurate and efficient financial statements. The reason why accounting affects the growth or fall of a business does not need an explanation; the reasons are already known by all. It is no wonder R. Brown stated that “it is hard to find a company that involves more accounting procedures than the other procedures.” Accounting controls the company’s profits, educates management on their decision-making with respect to the company, and it even affects the performance of the stock market sector. Potentially, the success or failure of all businesses had to do with an appreciation of accounting. So how about forensic accounting? Without a doubt, the profound impacts that forensic accounting has had in modern business go unaccounted for.

Forensic accounting is the integration of accounting, auditing, and investigative skills to provide an analysis of a company’s financial evidence. Forensic accountants investigate financial crimes, commonly referred to as fraud. They also provide litigation support to attorneys in civil matters. Forensic accountants are also effective in the public sector, working in many law enforcement agencies. Fraud risk assessment, budget analysis, targets for documented financial fraud, money laundering, and technology support are other notable services that forensic accountants offer in a modern business.

2. Role of Forensic Accountants

Forensic accounting is gaining considerable attention following several financial scandals that revealed various shortcomings associated with the financial reporting process. This heightened attention has been driven, in part, by the increasing demand for forensic accounting services. Forensic accountants are experienced auditors, accountants, and investigators of legal and financial evidence who combine their accounting knowledge with investigative skills in various litigation support and investigative accounting settings. The work performed by forensic accountants can be grouped into three broad areas: litigation support, investigation, and expert witnessing. In litigation support, forensic accountants assist in the litigation process in a consultancy role. During investigation assignments, for example internal or external fraud investigations, forensic accountants examine evidence to ascertain the occurrence of malfeasance to develop measures to prevent fraud in the future and to support any subsequent litigation. It is necessary to note that forensic accountants comply with the principles and ethical standards that govern the accounting profession.

Despite the attention gained by the profession of forensic accounting, we continue to lack rich analyses of the roles that forensic accountants assume in their professional practice. Even less is known about the activities and skills they employ. This paper presents the findings of a small-scale research project that addresses this gap. Content analysis of scholarly, practitioner, and professional texts and documentation, and 17 semi-structured interviews with finance professionals led to the identification of twenty roles and approximately 125 distinct activities performed by forensic accountants, including the skills requisite for these activities. This permits a rich and detailed understanding of forensic accounting roles and activities, which we present here, along with a full description of the application and utility of forensic accounting skills. Our taxonomy permits several broad conclusions related to the roles and unique skills of forensic accountants which serve to improve understanding of forensic accountancy.

3. Techniques and Tools in Forensic Accounting

The professional tool that can be used by the forensic accountant to prevent money laundering is the four-eye principle. This principle, which was implemented, among other things, by the management of certain joint-stock companies in collaboration with external entities, provides for the examination by at least two seniority specialists and the countersigning of each operation that raises suspicions. The contribution of the computer tool in the analysis of forensic accounting should not be overlooked, since it is a real revolution in contemporary economic life and its presence cannot be neglected, and there are not a few examples in which the approach of certain links in the chain allowed the “blow” coordinated and faultlessly, with the evidence provided in real time by the vulnerabilities found in different software applications. Of course, the goal is not to become petty snoopers, but to be examples of ethics fairs and, why not, to offer knowledge and work and in a practical way, not only on paper, respecting the old but neglected saying “The value of knowledge is given by its gesture”.

Having defined the field of forensic accounting and the role and importance of the forensic accountant in the fight against economic and financial crimes, we have the opportunity to expand the expert field with precision by identifying and presenting some techniques and tools we have available for achieving largely the proposed objectives. “Techniques” refer to methods of work used in achieving forensic accounting objectives and, at the same time, the mechanisms used in the analytical approach of the research and in the verification of the results obtained, while “tools” refer to any objects involved in pursuing or achieving the professional objectives of the forensic accountant.

4. Benefits of Implementing Forensic Accounting

The importance of implementing forensic accounting in modern business includes, among others, being able to follow where the money is going and coming from, which leads to money laundering and terrorist financing on one hand. Through analyzing accounts and transactions of businesses in a forensic manner, forensic accounting helps to uncover the way in which money is flowing and changing hands. This includes those which are through illegal trade and practices, and that also embolden terrorists through their ill-gotten wealth. So, as crimes are ever-evolving, in that one way or the other, they contribute to investigative and forensic accountants and digital forensic professionals. Terrorists too are turning to fresh tactics in pursuit of their objectives.

The overall objective of forensic accounting is to aid the court, judiciary, or tribunal in the resolution of the true income, asset values, assess the matter in dispute, and to resolve disputes. The qualitative aspect of every information concerns the amount of credibility of the information that is supplied. The information is said to be qualitative if the information is either useful or potentially useful for taking environmental actions.

Forensic accounting is an important area of the accounting professional practice. However, exposure to fraud and wrongdoing in corporate Nigeria has been pervasive and it serves as a critical factor attracting global attention. This has thus led to a radical revamp and surge in the modern business arena, adding to the essentiality for forensic accounting in modern business.

5. Conclusion

The evolution of forensic accounting manifests the importance and the role of accounting in modern businesses—through its mechanism—legal action. As business activities become more complex and the environment in which they operate continues to change, the need for the services rendered by forensic accountants will continue to be felt. Thus, forensic accounting, from a more conventional art, has evolved into an integrated science which can only be responded to by a multi-disciplined investigative team. Interviewed forensic accountants believed that forensic accountants should work together with security consultants, information technology (IT) experts, corporate governance experts, human resource consultants, lawyers, and other professionals in order to provide credible evidence in legal proceedings as well as advice acceptable in the business settings. Sustainable corporate development has thus, rested upon the effective rescue of the businesses from corruption and other high-profile fraud-related problems.

The application of forensic accounting enabled the exposure of the most infamous ‘white collar crime’. The Enron case, and its implications to other large corporate organizations, has further propelled the growth of forensic accounting as a critical piece in the battle against fraud. Meanwhile, regulatory oversights, business failures, as well as accounting scandals in financial institutions aside from corporate organizations, have been key elements in the need for the added responsibilities of accountants, as demanded by the needs of the modern business world. Forensic accounting is the response launched by the global accounting community to meet the growing demands that emerged from those catastrophic events.

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