What is the role of Forensic Accountants:
Forensic accountants are uniquely suited to help in-house counsel address issues involving financial reporting, accounting and internal controls. They also collect and analyze accounting and internal-controls evidence. They produce a fact-based report that can inform the decision-making process in inquiries, investigations and dispute resolution.
By product of Forensic Accountants work:
The forensic accountant’s work often include remediation strategies to help a company mitigate and remedy procedural or internal-controls gaps that allowed the underlying issue to occur. Inquiries into accounting and internal controls raise a host of technical issues requiring specialized knowledge that forensic accountants are uniquely positioned to provide.
How does Forensic Accounting differ from Auditing?
The objective of a forensic accounting assignment is to collect, analyze and report on the evidence or facts surrounding a particular act that often has litigious, fraudulent or criminal implications.
Auditors also collect and analyze evidence, but an independent auditor’s objective is to attest to the credibility of assertions that are under examination, such as the material accuracy of financial statements for which the audited company’s management is responsible.
Internal auditors examine evidence to determine whether people followed prescribed processes or internal controls; this occurs, for example, in an operational or Sarbanes-Oxley compliance audit.
Forensic accountants, independent auditors and internal auditors all have experience related to accounting and internal controls. All are process oriented and know how to spot issues.
Most important trait of Forensic Accounting:
The most important trait of a good forensic accountant stems from the difference in the work’s objective as previously discussed.Once an independent or internal auditor spots a concern, protocol is to notify company management about the issue but not investigate further; that’s management’s responsibility. This is where the objective shifts and one of the forensic accountant’s strongest skills comes in: an investigative mind that drives him or her to answer questions about what occurred, when and how it happened, and who was involved.
Sometimes forensic accountants also may need to gather facts about why an event may have occurred. This is true, for example, in a fraud claim where the trier of fact must find intent to determine fraud. Forensic accountants always look for answers to such questions or for red flags in the evidence.
Many forensic accountants have additional training and experience in skills such as evidence collection and preservation, witness interviews, and data-mining and analysis. They often are well aware of legal procedures and protocols, and they also may be subject-matter experts with specific specializations, such as corruption, bribery or money laundering.
One consideration is whether to hire a forensic accountant directly as an employee or to engage an outside third party that provides such services. A factor in this decision is whether it’s useful to have the skill set in-house or preferable to have the forensic accountant be completely independent of management.
If in-house counsel decides to hire the forensic accountant as an employee, the department to which the individual should be assigned is a consideration. Should the forensic accountant be part of internal audit, for example, or legal and compliance?
In the past, companies have used existing internal auditors to do this type of work as a way to reduce costs and due to the perceived similarities in the skill set and work product. More and more, however, forensic accountants employed by an organization are assigned to the legal and compliance department because of the legal implications surrounding the work. This structure also allows the forensic accountant to maintain an objective approach to an assignment as he or she is not governed by management or influenced by potential biases within the organization.
Assigning the forensic accountant to the legal and compliance department also could result in more privilege protection than assigning him or her to internal audit or another department. In some instances, outside counsel may need to engage the forensic accountant on behalf of the company to invoke the attorney-client privilege.
Collaboration with a forensic accountant can be especially effective for developing case strategy when financial reporting, accounting or internal controls are involved.
Article written by:Elizabeth M. Junell, click to obtain the complete article
1. Would you consider a career in Forensic Accounting, based on what you have read in the newspapers and the heard in the News?
2. Are the differences between a Forensic Accountant and an Auditor , clearly differentiated?
3. What are the risks of choosing a Forensic Accounting career?