What Is Forensic Accounting And How Is It Done?

What Is Forensic Accounting And How Is It Done?

What Is Forensic Accounting And How Is It Done?

The field of accounting, this field is not very well known. Forensic accountants are more focused on audit activities. Here are some meanings of the term according to some experts:

1. According to D. Larry Crumbley. He is editor-in-chief of the Journal of Forensic Accounting, revealing that forensic accounting is an accounting science that is compatible with law. Therefore, forensic accounting is considered to be able to survive in the arena of court disputes. Included in the judicial and administrative review process.

2. According to Merriam Webster’s Collegiate Dictionary. Forensic accounting can mean court-related. It can also be interpreted as relating to the application of scientific knowledge to legal problems. So this forensic accounting is an embodiment of the use of accounting science for legal purposes.

3. According to Wikipedia, explaining that forensics is something that is suitable for use in courts of law. A forensic accountant is also referred to as a forensic auditor or an investigative auditor. From some of the opinions above, it is quite clear that forensic accounting is the use of expertise, especially in the field of accounting and auditing.

Where both are combined with investigative capabilities that aim to solve financial disputes. Not only that, this forensic accountant is also reliable in uncovering fraud which will later be decided in court.

For example, such as cases of corruption. The corruption case is essentially a process of a financial dispute by the state against its own citizens who have positions in government.

These types of cases need to be investigated by state institutions such as the KPK. In addition, it is also assisted by members of the BPK, as well as BPKP. Now they are called forensic accountants.

Forensic Accountant Duties

With regard to their functions, forensic accountants certainly have several duties. In general, the duties of a forensic accountant are divided into 2 parts. Here’s a full explanation of each

1. Research services

For this service, the forensic accountant has a task that is more directed at examining fraud. An easier term is as a fraud auditor. Those who work as forensic accountants in this section have several abilities.

This includes accounting for detecting, preventing, and controlling fraud. They also have an advantage in the field of misinterpretation.

2. Litigation Services

There are also forensic accountants who have the task of completing litigation services. Its main task is to identify testimonies from fraud examiners. In addition, those who provide these services also work to solve evaluation issues.

One example is in the case of divorce. The audit team offering this service must pass certain training. One of the training is to discuss the importance of forensic accounting procedures in auditing practice.

Basically, forensic accountants are tasked with providing legal opinions in court and out of court. What are the duties of a forensic accountant to provide a legal opinion out of court? One of them is resolving cases in dispute as well as efforts to calculate the impact of contract violations.

Purpose of Forensic Accountants

As a forensic accountant who studies forensic accounting, this accounting aims to examine data by knowing all forms of money theft and their solutions. This type of accounting may also present a report of financial findings as evidence during a trial, with the accountant testifying as an expert witness.

As a forensic accountant, you have important goals in accounting and public consulting firms, law firms, law enforcement agencies, and insurance companies. Some forensic accountants deal with a wider range of fraud cases, such as working in law enforcement agencies or law firms. Accountants who work in more specific areas, such as public accounting or insurance, usually aim to focus on a specific type of fraud, such as insurance fraud.

Scope of Forensic Accounting

There are various types within the scope of forensic accounting and are usually grouped by type of legal process. Here are some typical examples:

1. Tax Avoidance or Fraud

Some individuals and businesses claim false information about their financial situation to avoid paying taxes. Forensic accountants track income to determine the extent of tax fraud committed. Forensic accountants can also use the data to prove that the accused company did not commit tax fraud.

2. Security Fraud

When stockbrokers or organizations make false claims about information that investors use to make decisions, they are committing securities fraud. Forensic accountants work to help investors avoid these scams and uncover companies involved in securities fraud.

3. Money laundering

Money laundering makes it difficult for forensic accountants to trace illegal money. Strong analytical and accounting skills are required for forensic accountants to solve these crimes and find the original source of funds.

4. Family and Marriage Disputes

Fraud can also occur in families and marriages. Whether hiding money or using relationships to steal funds, forensic accountants help resolve these situations. While these crimes usually occur on a smaller scale than scandals with larger corporations, family and marital disputes can still be very damaging.

5. Business Economic Losses and Bankruptcy

When a business suffers a severe economic loss or faces bankruptcy, forensic accountants can play a valuable role in the recovery process. Sometimes forensic accountants find evidence of fraud that can help a business regain its footing.

6. Hidden or Misappropriated Assets

Misappropriated assets may appear to be embezzlement, fraud, or theft. Individuals or businesses may also hide their assets, intentionally leaving them off the balance sheet so as not to be owned by other individuals or entities. Financial accountants work to uncover these discrepancies and hold people and companies accountable for their finances.

7. Insurance claim

False insurance claims are a common way for individuals to profit from lies involving the protection of their assets. Examples include false claims such as theft or a house fire. Forensic accountants carefully look at the facts surrounding these claims to determine their validity.

Overview of the Stages in the Forensic Accounting Process

In the process, forensic accountants certainly have certain stages. In general, there are 6 stages. Here’s a description of each

1. Identification of problems

At this stage, a forensic auditor will carry out an initial understanding. From what cases are being disclosed. Carrying out this initial understanding aims to sharpen the analysis and specification of the scope. That way, the audit process can be carried out on target.

2. Conversations With Clients

This conversation or interview with the client is the most important stage in the forensic accounting process. In this stage the accountant will conduct interviews with clients. Related to the criteria, scope, limitations, timeframe, and audit methodology.

This step is done in order to create an understanding between the auditor and the client.

Why is this stage important? Because both of them have the same point of understanding, the case resolution process will run faster, and on target.

3. Preliminary Inspection

The stage where the auditor will begin to collect initial data and perform analysis. Until the results are obtained in a 4W+1H matrix. If this matrix has been bagged, it will be decided whether to continue the investigation or not.

4. Examination Plan Development

At this stage, the auditor will do the preparation of several things. Starting from the documentation of the cases encountered, the implementation procedures and audit objectives, as well as what are the individual tasks in the team. Once neatly arranged will produce a finding. It is these findings that will ultimately be communicated by the audit team and the client.

5. Advanced Check

This is the stage where the auditor begins to collect evidence. At this stage, the audit process has actually started running. The auditors have started to use various techniques to find out the truth about the existence of fraud and the perpetrators.

6. Preparation of reports

The last is the report preparation process. At this stage, the auditor will issue a kind of report, namely a forensic audit report. There are several points that should be written in this report, namely

1. Conditions, namely what things actually happen on the field.
2. Criteria, which are what standards are used when carrying out activities.
3. Conclusion, describes the whole core of the audit process.

That was a glimpse of forensic accounting. Regarding the meaning, duties, and important stages in the process. Please use it as a reference source for those who do not understand the term accounting field.

By knowing several stages of forensic accounting, you can apply this knowledge to yourself, if you intend to master accounting.

To deepen your accounting knowledge, you can also learn accounting applications that are widely used by companies to manage the books and salaries of their employees.

Leave a Comment