Forensic accounting is a special subsection of accounting that goes beyond the typical job description of an accountant. Forensic accountants use their work in courtroom and other legal settings to help. Their primary roles are litigation support and investigative accounting (Zysman, 2012). To do this, forensic accountants combine accounting, auditing, and investigative skills. However, conducting investigations is only one component of a forensic accountant's job description; they also have to be capable of translating what they find into understandable evidence for the courtroom setting. In order to do this, "forensic accountants are trained to look beyond the numbers and deal with the business reality of the situation" (Zysman, 2012). Forensic accountants may perform a variety of different functions, including: forensic investigations, forensic audits, internal audits, and external audits. A forensic investigation is any investigation aimed at producing evidence for the courtroom. A forensic audit is an audit that is conducted to provide evidence for the courtroom. An internal audit is an audit performed by an employee to determine if a company is following its own operating procedures. An external audit is an audit performed by someone external to the company.
Forensic accountants have a large range of job requirements and, therefore, need a broad range of job skills. They must be able to analyze, interpret, and summarize financial information, and oftentimes this information is not only complex, but may also have been altered or otherwise used to conceal illegal activity. In addition to being able to understand this complex financial information, forensic accountants also have to be able to present this information in an understandable manner. Depending on what part of the job a forensic accountant is doing, the job can require the use of different skills. This leads to some disagreement about which skills are the most critical for a forensic accountant. However, in 2009 Davis et al. conducted a survey of attorneys, accountants, accounting/auditing professors and asked them to name the skills they felt were most critical for forensic accountants. Not surprisingly, each different group named different skills as critical to the forensic accountant, but they agreed that some skills, such as analytic skills, were critical to the job description. The top five skills highlighted in this paper have been drawn from the top five picks of each group of professionals, with an emphasis on those skills that were selected by multiple groups of professionals (Davis et al., 2009).
After reviewing the different picks from the various professional groups and the reasons given for their answers, the author has identified the following five skills as the most important skills for the forensic accountant: analytical ability; detail-oriented; ethical; oral communication ability; and ability to identify the key issues. The ability to be analytical is important because, without it, the other characteristics of a forensic accountant cannot be utilized. Forensic accountants must be able to look at evidence and make deductions based on that evidence. Forensic accountants must be detail-oriented. Accounting practices are almost useless if they do not contain all of the necessary information. Therefore, accountants must be able to pay attention to detail and to recognize when details have been overlooked. It may not seem like ethics falls into the category of a skill, but professional ethics are a skill that professionals must develop. Ethics are different than moral and accountants, like other professionals, have an ethical code. Following that ethical code is a critical skill set. One of the vital skills for forensic accountants is the ability to identify key issues. Can the accountant identify the big picture from the small numbers? This is particularly important in cases where there may be fraud. The fraud may not be apparent because the movement of money may be in smaller amounts, so the forensic accountant needs to be able to follow the money trail and determine the important issues in a case. Finally, none of these skills are of any use if the forensic accountant is not able to communicate those results effectively to the lawyers with whom he works or to the courtroom, which is why effective oral communication skills are critical for a forensic accountant. What is interesting is that accountants did not recognize the importance of oral communication skills, while both lawyers and professors believed that communication was even more important than auditing ability (Davis et al., 2009).
The Role of the Forensic Accountant in the Courtroom
A forensic accountant may be in court for several different reasons. Forensic accountants can appear in almost any type of lawsuit, but they are most likely to be used in: helping determine valuations; personal injury and wrongful death calculations; economic damage calculations; bankruptcy, insolvency and reorganization; family law; financial statement misrepresentation; computer-forensic analysis; and fraud detection and analysis (Acuff et al., 2011). In the courtroom, the forensic accountant is an expert witness. The analysis, auditing, accounting, and other practical skills have all been utilized outside of the courtroom. To understand what has happened and develop evidence for the courtroom, the "forensic accountant comes upon a financial scene in much the way that a detective works to solve a mystery: looking for clues, interviewing witnesses, obtaining and analyzing evidence. He or she combs through it all, searching for anomalies and inconsistencies around a common thread that might explain the entire picture" (Tucker, 2011). Once in the courtroom, the forensic accountant's role is to act as a witness. The accountant answers questions by the lawyer, explains facts, and has the background knowledge and familiarity with the evidence to answer questions by opposing counsel. Sometimes a forensic accountant may be given a hypothetical in a courtroom and asked to deliver an expert opinion about that hypothetical. This is an important factor, because the accountant must be able to resist giving opinions on those matters and honestly reply that they would need time to study that information before forming an opinion. Finally, the forensic accountant must be able to provide reasons that he or she should be considered an expert for the courtroom, including, not only educational background, but also any relevant prior experience. If the forensic accountant cannot establish that he or she is an expert, then any evidence that he could present in a courtroom is going to be deemed inadmissible.
The Legal Responsibility of a Forensic Accountant
The legal responsibilities of a forensic accountant are somewhat dependent upon the context in which that accountant is hired. For example, as a member of a defense team, a forensic accountant's work would be work product that is developed in anticipation of trial and therefore covered by attorney-client confidentiality laws in most states. Furthermore, accounting professional rules also deem that client-information is protected, so that if a client hires an accountant, the information divulged in the course of that professional relationship is covered by privilege. Moreover, the forensic accountant needs to follow professional ethical rules. The AICPA Code of Professional Conduct requires that accountants act objectively and independently in their evaluations of the evidence (AICPA, 2012). Accountants have a legal responsibility to comply with established accounting principles and standards (AICPA, 2012). This means that an accountant who has engaged in irregular business practices has violated his legal and ethical responsibilities as an accountant.
Furthermore, forensic accountants hired in specific roles may have additional legal responsibilities. For example, a forensic accountant working for the FBI may be responsible for executing search warrants, working with case agents, compiling financial investigative report, and meeting with prosecutors (FBI, 2012). As a member of a law enforcement agency, the forensic accountant would also take on all of the legal responsibilities of other members of that agency. Likewise, accountants hired in a public capacity to work as auditors may have duties to third party agencies. It is critical for forensic accountants to understand who has hired them and the purpose for which they have been hired, to ensure that they are meeting all of their legal and ethical obligations.
Two Cases Where Forensic Accountants Have Provided Evidence
Forensic accountants may be known for their work in large financial scandals, but they actually help in all different types of disputes. One of the more interesting cases where a forensic accountant provided evidence that not only impacted the outcome of an individual dispute, but also resulted in a significant change in the law. In Sheridan v. Sheridan, 247 N.J. Super. 552 (Ch. Div. 1990), the underlying dispute was a divorce. The husband maintained that the only income he had was just enough income to pay basic expenses. However, the family's lifestyle was much more extravagant. The wife used a forensic accountant to work backwards from the family's expenses to help establish the husband's actual income. This resulted in an income not only far in excess of what the husband was reporting in the divorce proceedings, but also in excess of what he had reported to the Internal Revenue Service (IRS). Not only did the court assert its authority over the husband in the divorce case, but it developed a…