Forensic accounting is a type of investigative accounting, where you trace back through the company or individual’s financial records to acquire an accurate and detailed assessment of what occurred financially. This is an assessment based on tracing documented proof back as far as possible to ascertain whether their records are accurate. The results are often presented in court cases. While they are usually associated with identifying fraud, there are many other facets encompassed by them, such as divorce proceedings, bankruptcies and business valuations.
What Does Forensic Accounting Entail?
Forensic accounting involves a lot of research, analytics, interviewing, reconciling of statements and investigative work. If you like sifting through information to formulate a whole picture was on often scattered information, this might be for you. Forensic Accounting is not just about fraud prevention but can also largely involve doing damage calculations and fixing poor bookkeeping and financial tracking. The Forensic Accountant uses the businesses documentation to trace back all of the transactions and dealings that occurred. If any incongruencies are found, they will need to identify the source and timeframe that it occurred in. Although it sounds fairly simple, in certain cases, like large-scale anti-money laundering or class action files, this process can take years to finalize. Throughout the process, you will need to carefully record all of your findings, even if you are not currently planning on using your findings in court. In order to perform their duties properly, they must familiarize themselves with a variety of Financial Reporting Systems, as well as the unique processes that are likely adopted by the different companies that they represent.
Who Can Become a Forensic Accountant?
Any accountant can become a forensic accountant; there is no CPA or other designation that is required for this position but a CPA, CIA or CFE can certainly make the process easier. In many cases, the business or firm may also require you to acquire these certifications at a later stage. Wither way, for the most part, entering the field is extremely difficult.
How can I Become a Forensic Accountant?
There are a few possible methods. The best way to get into the field seems to be by starting out in auditing or tax accounting and gaining experience in those fields for a coupe of years. You can then attempt to transfer into the forensics department of the company when an opening comes along or fid a forensics position elsewhere. There are also forensic accountancy firms that specialize in this field and who might be willing to take on untrained or inexperienced accountant at an entry-level or intern position. Similarly, the Big 4 often hire fresh Accountancy college graduates into their forensics teams.
It is important to note that many companies will require at least that you have acquired a CPA license, and possibly some background in fraud prevention or law enforcement. If you are still in college, then taking courses in Forensics, auditing, information technology and similar would certainly help you in the long run. As a side note, starting out in an auditing position may also be helpful in general when you are starting out, as it will provide you with a broader range of skills and experience than more specialized forms of accounting may do.
What are some Features of Forensic Accounting?
Analytical skills are the most important tool for a Forensic Accountant. This is because, as we stated above, much of Forensic Accounting is data and research driven. As such, possessing IT and programming skills can be useful in helping you to sift through the data. It also requires high levels of concentration, attention to detail and patience.
What are some Different Types of Forensic Accounting?
The two main categories of Forensic Accounting are investigations and litigation. Investigative Accountancy usually involves investigating criminal activities such as money laundering or fraud, whereas Litigation Accounting usually entails aiding a client regarding an existing litigation.
Forensic accounting is not exclusive to big companies and government work. They are also sometimes needed for Family Law and Divorce where they might be needed to investigate personal finances to determine alimony or child support requirements, or for post-merger disputes or GAAP disputes, among other tasks. Below, we have provided a few examples of the different areas where Forensic Accountants are needed.
Forensic Accountants who work in law enforcement will usually work for federal government agencies such as the IRS or FBI, state government agencies such as the state general’s office, or local law enforcement agencies. As the Association of Law Enforcement Forensic Accountants puts it, the task of Forensic Accountants in Law Enforcement is to, ‘better assist the Courts, victims, witnesses, suspects, defendants and their legal representatives in relation to alleged fraud, fiscal, financial and serious organized crime.’
There are a number of different functions that a Forensic Accountant may fill in corporate accounting. A couple of examples include being hired by a company on an advisory capacity to review their documentation and processes so as to avoid fraudulent or erroneous activities from occurring within their organization. In essence, they are hired to avoid litigations or investigations and fines from governmental organizations.
Fraud Risk Management
Similar to Internal Auditors, the Forensic Accountants involved in Fraud Risk Management will comb through the budgets, expenditures, income statements and other financial documentation of a company so as to determine any areas of concern that should be addressed. This could be in terms of altering procedures for greater transparency and more efficient detection of potential fraud risks. Additionally, they will also identify the company’s greatest internal and external risks so as to compile a lit of fraud schemes that are most likely to be perpetuated against the organization. It is best that such a system will be flexible enough to adapt to new fraud schemes that will inevitably come up.
What does a Forensic Accountant Earn?
According to Indeed.com, the average salary for a Forensic Accountant in the US is around $80,000 per year. Obviously, this varies per state, industry and position. For instance, Indeed.com also reports that the average salary of a Forensic Accountant is in the District of Columbia, where the average annual salary is $122,445 and that a Forensic Accountant with the FBI can easily earn over $100,00 per year.
As you can tell, Forensic Accounting is a specialized area that is not for everyone. But it can be very interesting and rewarding to those who it does appeal to. We hope that this helped you gain some clarity regarding this subject. CpaCredits.com offers a course on the ‘Fundamentals of Forensic Accounting’ if you are interested in gaining greater insight into this subject, while earning 3 semester hour credits.