Forensic accounting in corporate and fraud investigations

The name forensic accounting may suggest that it deals only with irregularities in keeping accounting records and financial reporting. Consequently, the potential of this field is not fully utilised. In this and the following posts I will try to present the nature of forensic accounting, its application in investigations and I will also try to persuade the readers of its usefulness.

First of all, forensic accounting can be applied to a much wider area than just to accounting and financial reporting. It can be used in analysing various types of fraud, including those seemingly unrelated to accounting. It is not all about investigating a given area, i.e. accounting, but about making investigations using certain set of competences. These competences combine investigating experience with knowledge about keeping accounting records, financial reporting, IT systems used for financial and accounting purposes and general principles of the tax system.

Consequently, forensic accounting may be applied in the following situations:

  • In all cases of suspected irregularities in the financial statements  (statutory, group and management accounts);
  • In cases of discrepancies between the actual assets/liabilities held and their balances in the accounting records or financial statements (these may result from theft or fraudulent entries in the accounting records or unintended errors or from a combination of such factors);
  • In all investigations – to obtain, analyse or interpret information presented in the accounting records, financial and accounting IT systems, electronic banking systems and related hard copy documents;
  • In searching for indications and evidence of fraud;
  • For obtaining data necessary to estimate losses resulting from fraud and other irregularities;
  • In analysing transactions and other accounting issues in FCPA/Bribery Act compliance audits;
  • In checking whether financial statements constituting the basis for an M&A decision have been distorted to increase/decrease the acquisition price.

I will try to present the cases above in more detail using practical examples in my next posts.

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