Forensic Accounting in Practice Term Paper
- Length: 6 pages
- Subject: Accounting
- Type: Term Paper
- Paper: #44746984
Excerpt from Term Paper :
roles of forensic accountants in preventing and detecting fraud within a business community. The paper highlights the requisites and basic responsibilities of a forensic accountant. The paper also makes references on the special cases where forensic accountants have assisted in fraud detection and prevention.
Overview of Forensic Accounting
Forensic accounting is the specialty area of accounting used to train an individual to develop the special accounting skills to detect and prevent financial fraud. The goal of forensic accountants is to fight financial crimes within the contemporary business environment. (Patil, 2011). Typically, a forensic accountant assumes an important position in the investigating services, legal services and regulatory services within a financial environment. In performing their roles, forensic accountants attempt to identify the gaps in accounting information, internal control and compliance of a business organization. In the light of the corporate scandals, especial the Enron Corporation and WorldCom scandals, that swept the financial communities in the 2000s, it was generally revealed that many organizations issued false financial statements to exaggerate the company's earnings thereby increase the company's stock prices. The increase in the corporate crimes within the business environment in the 2000s made the roles forensic accountants to become important within a financial community. (Patil, 2011). However, a forensic accountant needs to possess the required skills to perform the forensic accounting duties effectively.
Important Skills that a Forensic Accountant must possess
Analytical skills are the important skills that a forensic accountant must possess. A forensic accountant should be able to analyze the financial and electronic data to reconstruct and detect a financial fraud. Analytical skills consist of data collection, data preparation, data analysis and reporting. A forensic accountant must possess these skills to produce accurate information.
Digabriele (2008) argues that a forensic accountant should possess the critical thinking skills, which include ability to think creatively and understand the tactics that a fraud penetrator uses in committing and concealing a financial crime. More important, a forensic accountant should possess the advanced computer skills. Technological advancement has led to the increase in the demand for the service of a forensic accountant, because at presently, there has been a general increase in the number of corporate frauds. In the age of computers, technology advancement has made it easier for corporate executives to perpetuate frauds and steal million of dollars without being detected. Thus, a forensic accounting investigator needs to possess an advanced knowledge of computer to extract evidence from the computer and information systems, which will be used to convict a penetrator. Presently, businesses hire forensic accountants to examine the computer and document on a regular basis to detect any potential frauds. Thus, a forensic accountant could prevent a business failures as well as assisting a company to save million of dollars. ( Bressler, 2012).
Additionally, a forensic accountant should possess an investigatory skill. A forensic accountant should be able to use theories, methods and patterns to detect a fraud abuse. Typically, a forensic accountant should understand the courtroom procedure as well as thorough understanding of the criminal and civil law. More importantly, a forensic accountant should also have experience in auditing, accounting, taxation, management, business operations, interpersonal relationships, and internal control.
Communication skill is another important skill that a forensic accountant must possess. Since a forensic accountant will need to communicate his findings to various parties, a forensic accountant should possess the communication skills, which include oral and written communication skills. A forensic accountant should be able to present a report clearly, which people with little knowledge in accounting should be able to understand.
Over the years, forensic accountants have assisted many companies to implement effective internal control operations to ensure that the Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operation Officer (COO) and other key officers within an organization comply with the company financial operations.
However, a forensic accountant is required to play an important role in the courtroom environment since a forensic accountant will need to testify in the courtroom if a misappropriation of funds is uncovered.
Role of a Forensic Accountant within a Courtroom Environment.
"Forensic accountants assist lawyers in divorce cases and bankruptcy cases. Patent infringement, fraud, insurance, personal injury, and construction audits are some of the cases that forensic accountants are often called upon to investigate. They are hired by the police departments to gather evidence for prosecution that will be presented in court." (The Institute of Forensic Accountants, 2010 P4).
A forensic accountant assists in preparation of legal review and in delivering a suitable opinion relevant in a court. Nunn, et al. (2006) argues that forensic accountants play the key roles within the courtroom environment because they assist in the litigation process within the courtroom. For example, a forensic accountant provides an opinion based on the findings of the investigation. In a courtroom, a forensic accountant could be called upon to provide professional opinion on the civil claims and liability claims. More importantly, a forensic accountant could be called upon to provide professional opinion on the insurance disputes, delay construction, business valuations, employee theft and stolen trade secrets.
Additionally, a forensic accountant could serve as an expert witness in the courtroom. Typically, a court may ask a forensic accountant to serve as an expert witness in the litigation cases that involve the accounting fraud. Moreover, a forensic accountant may be asked to prepare tax analysis, suggest the interrogation questions, as well as assisting in interpreting the documentation in the courtroom. It is critical to understand that serving as expert witness is quite challenging. When called upon to provide an expert opinion, a forensic accountant should be able to explain everything in a non-technical language because a jury may not be familiar with the accounting jargons.
In the courtroom, forensic accountants are frequently called upon to resolve the business valuation between spouse who has joint ownership in a private company, business or partnerships. Moreover, a forensic accountant assists in providing the valuation services for the business and determines the appropriate financial breakdown of the assets. The goal of a forensic accountant is "to establish a realistic value of the business consistent with the client's goal, a value defendable under cross-examination in the courtroom." (Nunn, McGuire, & Whitcomb, et al. 2006 P. 3).
Cali, (2012) argue that a forensic accountant should have the special knowledge of the courtroom, investigating techniques and rules of evidence. When a forensic accountant is called upon to deliver a professional opinion in a civil litigation disputes related to values of economic damages, bankruptcy, insurance claims, and lost profits, a forensic accountant reduces the complexity of financial transactions by assisting a jury or judge to deliver an objective judgment with reference to a financial dispute. In a courtroom, a forensic accountant must be able to present his findings in a clear and concise manner as well as preparing a written report that would assist a judge or a member of the jury to understand the complex financial transactions.
Analysis of the legal responsibilities of forensic accountants is critical to enhance greater understanding of their duties and responsibilities while providing their professional services.
Analysis of Legal Responsibilities of a Forensic Accountant
Forensic accountants have the legal responsibilities to deliver unbiased professional services to businesses. It is also the responsibility of a forensic accountant to quantify a business income loss, cost and operating expenses of a business. Thus, a forensic accountant has the roles and responsibilities to use his knowledge to analyze business financial statements and deliver unbiased report with reference to organizational financial statements. Moreover, when a forensic accountant is asked to appraise the financial statements of a business, it is the duties of a forensic accountant to appraise and summarize the business and financial information in an unbiased and accurate way, and utilizing the forensic accounting specialist's knowledge with reference to the applicable rules and legal systems. In many cases, a forensic accountant may be hired by attorney to investigate a financial trail of an individual suspected to engage in criminal activities, it is the duties of a forensic accountant to deliver accurate information. Under the law, it is forbidden for a forensic accountant to deliver a misguided opinion. When a forensic accountant is called upon to calculate losses, revenues or lost profits, it is the duties and responsibilities of a forensic accountant to provide the accurate professional information.
In the United States and outside the United States, forensic accountants have assisted in uncovering frauds by providing vital evidence. The next section discusses cases that forensic accountants have assisted in uncovering the financial frauds.
Cases Forensic Accountant have Played Important Roles
One of the forensic cases that a forensic accountant played the important role was the case of Enron Corporation. The Forensic accounting investigations revealed that the Enron Corporation issued the false financial statements for several years, and the executives of Enron Corporation deliberately inflated the company's and issued a false balance sheet to increase the company stock prices . During the period, the financial statements painted a rosy picture showing that…