This paper examines the essential competencies required of forensic accountants, including accounting, auditing, investigative, business, and behavioral skills, and explains how each is applied in fraud detection and litigation. It outlines the forensic accountant's roles in the courtroom, from evidence gathering to expert testimony, and details the ethical obligations — integrity, objectivity, competence, confidentiality, and professional conduct — that govern their work. Two prominent fraud prosecutions, the Master Graphics/John P. Miller case and the Enron/Jeffrey Skilling case, are used to illustrate how these skills and responsibilities operate in practice.
A forensic accountant must possess accounting skills, auditing skills, business skills, knowledge of investigative techniques, and a clear understanding of human behavior. Each skill is applied to business operations and is used in the courtroom environment. These skills are vital in obtaining evidence needed in business and court cases to identify fraud and prosecute it. The forensic accountant must know how to combine all of these skills in order to explain the evidence collected and how the accounting systems work.
Accounting skills are essential for understanding how transactions are recorded according to Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). These standards dictate how transactions must be recorded, how assets must be evaluated, and when expenses must be recognized in determining net income or loss for a given period. Accounting records tell the story of business operations — how money is made, how money is spent, cash flows that determine financial health, and financial ratios that illuminate different aspects of that health.
Auditing skills are important in forensic accounting for tracing transactions back to their original source and time. By doing so, accountants can determine whether previous transactions were recorded correctly, whether internal controls were in place to prevent and mitigate fraud and error, and whether transactions were valid or fabricated. Auditing also enables the gathering of evidence to show how transactions were — or were not — recorded correctly and how they developed within business operations.
Although every business operates differently, there are basic business skills that are industry-, region-, and company-specific. Understanding the business operations and how business is conducted is the most important element in interpreting the accounting story. Businesses are required to operate under state, federal, and industry-specific regulations and laws, not just accounting standards. By applying business knowledge, areas of noncompliance can be identified and evaluated for evidence.
Investigative techniques help determine what the evidence is and what it proves. They require an analytical mind that asks questions and searches for answers to establish what truly happened at a given time or in a given situation. This is especially vital in forensic accounting in order to determine the accurate facts for any given period. Combined with accounting and auditing skills, investigative techniques help uncover hidden facts about how transactions were recorded and can link those acts to specific employees at specific times and circumstances within the business system.
Understanding human behavior is essential to comprehending how and why fraud occurs (Homan, 2006). Fraudsters tend to rationalize and justify their actions and seek various methods to commit fraud. Understanding human behavior helps determine how fraud occurred, whether fraud occurred, and the various ways fraudsters attempt to conceal it. It also assists in analyzing key evidence to determine the true situation or concern.
The primary role of forensic accountants is to assist the court, solicitors, and clients in understanding complex financial and accounting issues and to present that information in a way that all parties can understand (Shields, 2010). Opinions and findings must be supported by evidence that holds up under cross-examination and scrutiny. In the litigation process, forensic accountants assist in the initial discovery phase by asking the right questions — particularly top-level questions first. They apply commercial knowledge and expertise to translate the story told by financial statements and tax returns. When figures do not reconcile, they find evidence and clues to support or disprove claims for damages. This is the most important role they perform.
Forensic accountants also provide expert evidence, both written and oral, to support their opinions and calculations during cross-examination. Extensive experience in cross-examination is a vital component of how effectively a forensic accountant presents the evidence collected. Because accountants must maintain independence, their opinions are regarded as objective and unbiased, and their professional expertise is upheld in the courtroom.
Forensic accountants carry legal responsibilities while providing services to businesses. Integrity, objectivity, competence and due care, confidentiality, and proper conduct are all vital obligations of the forensic accountant (Code of Professional Ethics, 2012). The forensic accountant must resist pressure to misrepresent facts. Integrity encompasses honesty, trustworthiness, fair dealing, and truthfulness, and all facts must be well documented. Objectivity stems from judgments based on evidence. Reasonableness must prevail in identifying circumstances and relationships likely to impair objectivity, such as conflicts of interest. Any relationship that creates a conflict of interest can compromise the forensic accountant's objectivity and render evidence inadmissible in court — meaning evidence can be thrown out if the forensic accountant is found to have a conflict of interest.
Competence and due care require that the forensic accountant possess specific education, training, and examination results in professionally relevant subjects, along with appropriate work experience. Services must not be carried out without sufficient competence in skill and resources. Maintaining professional competency also means staying current with developments in accountancy, including national and international standards in forensic accounting, auditing, and other regulatory and statutory requirements. Confidentiality obligates the forensic accountant to protect confidential information even after the professional relationship ends, unless specific authority to disclose has been given or disclosure is required by legal or professional duty. Forensic accountants must act credibly and maintain professional conduct at all times — both on and off the job.
"SEC prosecution of income overstatement scheme"
"Skilling prosecution and forensic accounting's role"
Shields, A. (2010, Mar 29). The role of forensic accountants. Retrieved from dolmanbateman.com:
Skilling v. United States, No. 08-1394, 554 F.3d 529. (2010, June 24). Retrieved from Cornell University Law School:
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