Forensic accountant

Last updated

Forensic accountants are experienced auditors, accountants, and investigators of legal and financial documents that are hired to look into possible suspicions of fraudulent activity within a company; or are hired by a company who may just want to prevent fraudulent activities from occurring. They also provide services in areas such as accounting, antitrust, damages, analysis, valuation, and general consulting. Forensic accountants have also been used in divorces, bankruptcy, insurance claims, personal injury claims, fraudulent claims, construction, royalty audits, and tracking terrorism by investigating financial records. Many forensic accountants work closely with law enforcement personnel and lawyers during investigations and often appear as expert witnesses during trials.[ citation needed ]

Contents

Tasks performed

Forensic accounting or forensic accountancy has been used since the time of the ancient Egyptians when Pharaoh had scribes account for his gold and other assets. These scribes worked in Pharaoh's courts and were charged with fraud prevention and detection. Their role stayed much the same until the turn of the 20th century. [1] As an accountant they must have knowledge of the latest accounting standards and procedures, be proficient in many different Financial Reporting Systems being used, and be able to provide recommendations that will strengthen internal controls. They also need to have an understanding of the different monetary units used internationally due to the different types used in foreign accounts or companies. As an auditor they must perform regular financial audits to prevent possible situations that could lead to fraud. As an attorney they must know the current Federal and State laws and regulations, and should be able to approve or disprove suspicions of fraud. They may also be called to be an expert witness in a court trial so they must be able to communicate well and at a level that is understandable by individuals without accounting knowledge.

As an investigator they must investigate and gather evidence to be presented in a court of law; be able to investigate complaints, allegations, and tips of suspected fraud; must be able to sort, analyze, and compare data in support of an investigation; and must have a working relationship with the investigating and prosecuting agencies involved.

When acting as an expert witness in court proceedings in Federal Court in the United States a forensic accountant is required to give testimony which is based upon sufficient facts or data and is the product of reliable principles and methods, and they are required to have applied the principles and methods reliably to the facts of the case. [2] When acting as an expert witness in court proceedings in the United Kingdom a forensic accountant is obliged to give "objective, unbiased opinion on matters within [their] expertise". [3] [4] For a comparison with French practices, see a study of "Forensic Accountants at Work". [5]

Information needs

Forensic accountants need to have a great deal of access to information regarding the company they are investigating or assisting. The information will determine how much a person actually makes, the worth of a business, if there has been fraudulent activity, who committed the fraud, everyone involved, how much was taken from the company, where the money went, and how much can be recovered. Some of the obvious information needs consist of the financial statements, bank statements, credit statements, and computers. Some of the less obvious information needs consist of address books, emails, phone numbers, spreadsheets, electronic memos, and so forth.[ citation needed ]

Forensic Investigation/Audit

Forensic accountants need to advance fully to become all rounded forensic investigators or auditors that can handle any type of situation requiring financial or digital forensic skills. These days white collar criminals are high tech to the extent of using computers to defraud and perpetrate financial related crimes in such a manner that a traditional forensic accountant can not be able to trace. Sometimes investigation involves e-mail tracing to ascertain intent an element that must exist for any one to be convicted of fraud. Certified Forensic Investigation Professionals have such training. They are part forensic accountants and part digital forensic experts.[ citation needed ]

Financial statements

Financial statements are very important to forensic accountants because they must analyze the information given on the statements and compare that information to other sources. The balance sheet, income statement, statement of owner's equity, and statement of cash flows are the four most important financial statements that forensic accountants look at; however, they also look at business plans and disclosures in footnotes.[ citation needed ]

The balance sheet shows the financial position of a company at a given point in time. It lists the company's assets, liabilities, and owner's equity while showing the resources of the company. The income statement shows the results of the company's operations during a period of time, revenues minus expenses for a given time period ending at a specified date. The statement of owner's equity, also known as the statement of retained earnings or the equity statement, reconciles the beginning and ending retained earnings for the period, using information such as net income from the other financial statements. [6] The statement of cash flows lists the sources and uses of cash and divides them into operating, investing, and financing activities. They evaluate the company's ability to pay its bills while indicating if there is enough cash for routine operations. Some other financial documents that need to be examined include the general journal, general ledger, sales journal, purchases journal, cash receipts journal and cash disbursements journal.

Even though forensic accountants need to analyze and compare financial statements most cases of fraudulent activity will not be in plain sight. Most fraudulent activity will be hidden and manipulated to the point that forensic accountants must dig deep into the company.

Bank statements

Bank statements are also needed in order to investigate a company. The owner's personal bank statements are needed as well as the company's bank statements. If the company is the one who wanted the investigation to be conducted then they most likely suspect an employee. Therefore, bank statements would be needed from the individual being investigated. They will show how much cash is coming into and out of the company. They will also show where the money is going and where it is coming from, who are the clients, and if any money has been transferred to foreign accountants.

Once again, if the owner of the company was performing fraudulent activities then the discrepancies would not be in plain sight; the owner would most likely have foreign accountants with no trace to them. If evidence of a foreign account can be found then there may also be evidence on what the individual has been purchasing with that account, when it was opened, how much has been deposited, and if there is a valid reason for the individual to have a foreign account open. If the company is based overseas, then that alone is reason enough to have a foreign account. However, if it is an individual's personal account and they put the account under a different name (mother's maiden name who died 10 years ago) then there is enough reason to believe the individual is trying to hide something.

Credit statements

Credit statements can show evidence that bank statements may not, but once again, the evidence will not be in plain sight. Forensic accountants must look to see if there were any big purchases that do not match the individual's income, for instance, a new vehicle. Credit statements may also reveal that the individual has been taking several exotic vacations over the past few years that are outside of their means.

Forensic rating models

Forensic rating models are financial models used to represent the information known about a business and to derive an overall score, indicating a risk of financial fraud. Financial ratios are calculated from published figures, then techniques to judge the stability of a company by looking at particular ratios have been used since the 1930s. [7] An improved technique is based on discriminant analysis, [7] where these ratios are weighted by coefficients to give an overall value or Z-score. [7] [8] The coefficients are chosen based on research by forensic accountants across good and bad business practices, and may vary for particular market sectors or for different models. Since Altman's 1968 publication [7] and later work such as Taffler's in 1983, [9] these Z-score models have been widely used.

In India, such models were developed in response to the Satyam scandal of 2008. [8] Models such as J-score were developed, [10] from the work of CA Mayur Joshi and published in 2011. [11] J-score is built on the presumption that it is more difficult to manipulate the cash flows than to present an inflated value for an asset, and so emphasises these. [8]

Education

A person in this field should have at least 2 years experience in auditing or accounting and a Bachelor's degree in Accounting or a related field. Some forensic accountants are Certified Forensic Accounting Professionals (CFAPs), [12] Certified Forensic Investigation Professionals (CFIPs), Certified Public Accountants (CPAs), Chartered Accountants (CAs), Certified Management Accountants or Chartered Professional Accountants (CMA/CPA), Certified Fraud Examiners (CFEs), Certified in Financial Forensics (CFFs), Certified Forensic Accountant (CRFAC), Certified Valuation Analysts (CVAs), Investigative & Forensic Accountants (IFAs), or Chartered Certified Forensic Accountants (CCFA). Some have other professional certifications. The comparison of all these certifications is available on different third party media portals.

Certified Forensic Investigation Professional (CFIP)

The Certified Forensic Investigation Professional program for potential investigators' knowledge and competence in professional forensic investigation skills in various subjects include:

  1. Criminology & Psychology
  2. Principles and Practice of Accounting
  3. Computer and digital forensics
  4. Fraud Auditing and Forensic Accounting
  5. Criminal Investigations
  6. Studies on Fraud and Corruption
  7. Investigation Law
  8. Investigative accounting [ citation needed ]

Certified Forensic Investigation Professionals have the following skills sets:

  1. Fraud Prevention and Detection
  2. Forensic Investigation
  3. Criminal Investigation
  4. Design and Implementation of Preventive Controls
  5. Digital forensics
  6. Forensic Accounting
  7. Assets tracing in Divorce, Bankruptcy and Money Laundering Cases and
  8. Expert witnessing

Basic Entry qualifications:

  1. A bachelor's degree plus
  2. 3 years experience in finance, auditing, investigation, accounting, security and law enforcement, digital forensics or cyber security or
  3. High school diploma with over 5 years experience in finance, auditing, investigation, accounting, security and law enforcement, digital forensics or cyber security. Those with certifications like CPA, ACCA, CA, CFE, or equivalent professional qualification with over 8 years’ experience in auditing or investigation may become fully certified via the grandfathering process.

The CFIP credential was first put into use in 2012.[ citation needed ]

Certified Forensic Accountant (CRFAC)

The Certified Forensic Accountant credentialing process offered by the American Board of Forensic Accounting is used to assess the knowledge and competence of Certified Public Accountants (CPAs) in professional forensic accounting services in a multitude of areas. [13]

Forensic accountants may be involved in both litigation support (providing assistance on a given case, primarily related to the calculation or estimation of economic damages and related issues) and investigative accounting (looking into illegal activities).

The CRFAC covers the broad base of forensic accounting knowledge. [14] The CRFAC credential was first put into use in 1993. [15] The American Board of Forensic Accounting offers many programs. [16] For effective learning, professionals will need expert training in the practices of forensic accounting. The American Board of Forensic Accounting offers the "Forensic Accounting Review". [17]

Certified Fraud Examiner (CFE)

The Association of Certified Fraud Examiners offers the Certified Fraud Examiner (CFE) credential to members involved in fraud prevention, deterrence, detection and investigation. Candidate eligibility is based on a point system (representing a combination of formal education, professional certifications and relevant work experience) and a minimum of two years of anti-fraud professional experience. To earn the CFE credential, candidates must pass a four-part examination and abide by a code of professional ethics.

The terms forensic accounting and fraud examination are often used interchangeably, however they are not the same discipline. Forensic accounting focuses on litigation support and covers both fraud and non-fraud situations (e.g. economic damages, personal injury, family law, etc.). Fraud examination concerns itself exclusively with fraud-related matters and encompasses the prevention, deterrence, detection and investigation of fraud.

The CFE credential is recognized by partner organizations leading the global fight against fraud and including, among others, the Federal Bureau of Investigation, the Securities and Exchange Commission, the Internal Revenue Service, the Ontario Provincial Police, the City of London Police and the City of Toronto Auditor General's Office.

[18]

Certified in Financial Forensics (CFF)

The American Institute of Certified Public Accountants has a subject matter expertise credential for forensic accountants. The credential is Certified in Financial Forensics ("CFF"). "The CFF credential is granted exclusively to CPAs who demonstrate considerable expertise in forensic accounting through their knowledge, skills, and experience. The CFF encompasses fundamental and specialized forensic accounting skills that CPA practitioners apply in a variety of service areas, including: bankruptcy and insolvency; computer forensic analysis; family law; valuations; fraud prevention, detection, and response; financial statement misrepresentation; and economic damages calculations." [19]

The average salary for a forensic accountant in the US is around $74,000.00. A forensic accountant in New York could make up to $102,655.00 while a forensic accountant in Orlando usually only makes $56,071.00. [20]

Forensic accountants must be able to work independently and be able to travel at least 10-15% of the time. Some forensic accountants acting as consultants are not paid on salary and are rather contracted to do a specific task for a company. A decision is made between the organization and the accountant on what is to be paid if the job is done in a specific amount of time and the accountant is paid upon completion. These contracts can range from a few thousand to several million depending on the time taken and the specialized skills, if any, that are needed.

Certified Valuation Analyst (CVA)

A Certified Valuation Analyst (CVA) is a designation issued by the National Association of Certified Valuation Analysts (NACVA) to accounting professionals who have knowledge and expertise of business valuation standards. Requirements for the CVA designation include holding an active, valid, and unrevoked CPA license or holding a business degree (i.e., in management, economics, finance, marketing, accounting, or another business field) and/or an MBA (master of business administration) or higher business degree from an accredited college or university and two years or more of full-time or equivalent experience in business valuation and related disciplines for non-CPAs. In addition to these requirements, CVA applicants must complete and pass specified training courses and exams and complete a case study or submit an actual and sanitized fair market value report, prepared during the last 12 months, for peer review. [21]

NACVA's recertification process is designed to ensure that credential holders keep up with changes in the constantly evolving valuation field and that they continue to adhere to the industry's high standards. Recertification is required every three years. [22]

CVAs are used to perform business valuations in a wide variety of instances. These can include matters related to mergers and acquisitions, buy/sell agreements, determination of damages in third-party liability matters, dissenting shareholder actions, business disputes, divorce settlements, estate and succession/exit planning, initial public offerings, partner disputes, public domain matters and fraud and arson defences that involve insurance values.

Chartered Certified Forensic Accountant (CCFA)

The Chartered Certified Forensic Accountant, CCFA designation is a global forensic accounting designation awarded by the International Institute of Certified Forensic Accountants, Inc. (IICFA). To be awarded with the CCFA designation, one must pass all three (3) levels of the CCFA qualifying exams and must obtain two years post qualification or professional experience with a reputable forensic accounting firm.

CCFA candidates must hold a bachelor's degree and pass all 15 papers of the CCFA Exam with an 80% pass Mark.

CCFA Level 1 Exam

1.1 Principles of Forensic Accounting

1.2 Principles of Fraud Examination

1.3 Forensic Criminology & Legal Studies

1.4 Financial Crime Investigation

CCFA Level 2 Exam

2.1 Computer & Digital Forensics

2.2 Criminal Investigation

2.3 Corporate Fraud & Internal Audit

2.4 Corruption & Public Sector Fraud

2.5 International Financial Reporting

2.6 Money Laundering & Terrorist Financing

CCFA Level 3 Exam

3.1 Advanced Forensic Accounting

3.2 Compliance, Ethics & Governance

3.3 Ethics & Financial Forensics

3.4 International Criminal Law

3.5 Fraud Audit & Assurance

The CCFA exam is rigorous, tough and credible. It will take consistent determination to earn the CCFA credential. The CCFA credential is the global certification for truly qualified forensic accountants. CCFA's are saving government and corporations millions of dollars every day through the dint of the CCFA's skills and competence.

CCFAs are required to comply with CPE provisions of the Institute. To maintain the CCFA designation and be in good standing, 30 CPE hours per year are mandatory. [23]

Related Research Articles

<span class="mw-page-title-main">Accounting</span> Measurement, processing and communication of financial information about economic entities

Accounting, also known as accountancy, is the processing of information about economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activities and conveys this information to a variety of stakeholders, including investors, creditors, management, and regulators. Practitioners of accounting are known as accountants. The terms "accounting" and "financial reporting" are often used interchangeably.

Professional certification, trade certification, or professional designation, often called simply certification or qualification, is a designation earned by a person to assure qualification to perform a job or task. Not all certifications that use post-nominal letters are an acknowledgement of educational achievement, or an agency appointed to safeguard the public interest.

<span class="mw-page-title-main">Accountant</span> Practitioner of accounting or accountancy

An accountant is a practitioner of accounting or accountancy. Accountants who have demonstrated competency through their professional associations' certification exams are certified to use titles such as Chartered Accountant, Chartered Certified Accountant or Certified Public Accountant, or Registered Public Accountant. Such professionals are granted certain responsibilities by statute, such as the ability to certify an organization's financial statements, and may be held liable for professional misconduct. Non-qualified accountants may be employed by a qualified accountant, or may work independently without statutory privileges and obligations.

<span class="mw-page-title-main">American Institute of Certified Public Accountants</span> American trade group of financial transaction trackers

The American Institute of Certified Public Accountants (AICPA) is the national professional organization of Certified Public Accountants (CPAs) in the United States, with more than 428,000 members in 130 countries. Founded in 1887 as the American Association of Public Accountants (AAPA), the organization sets ethical standards and U.S. auditing standards. It also develops and grades the Uniform CPA Examination. The AICPA maintains offices in New York City; Washington, DC; Durham, NC; and Ewing, NJ.

<span class="mw-page-title-main">Certified Public Accountant</span> Title of qualified accountants in many countries

Certified Public Accountant (CPA) is the title of qualified accountants in numerous countries in the English-speaking world. It is generally equivalent to the title of chartered accountant in other English-speaking countries. In the United States, the CPA is a license to provide accounting services to the public. It is awarded by each of the 50 states for practice in that state. Additionally, all states except Hawaii have passed mobility laws to allow CPAs from other states to practice in their state. State licensing requirements vary, but the minimum standard requirements include passing the Uniform Certified Public Accountant Examination, 150 semester units of college education, and one year of accounting-related experience.

<span class="mw-page-title-main">Audit</span> Systematic and independent examination of books, accounts, documents and vouchers of an organization

An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon." Auditing also attempts to ensure that the books of accounts are properly maintained by the concern as required by law. Auditors consider the propositions before them, obtain evidence, roll forward prior year working papers, and evaluate the propositions in their auditing report.

<span class="mw-page-title-main">Financial audit</span> Type of audit

A financial audit is conducted to provide an opinion whether "financial statements" are stated in accordance with specified criteria. Normally, the criteria are international accounting standards, although auditors may conduct audits of financial statements prepared using the cash basis or some other basis of accounting appropriate for the organization. In providing an opinion whether financial statements are fairly stated in accordance with accounting standards, the auditor gathers evidence to determine whether the statements contain material errors or other misstatements.

<span class="mw-page-title-main">Certified Management Accountant</span> Professional credential

Certified Management Accountant (CMA) is a professional certification credential in the management accounting and financial management fields. The certification signifies that the person possesses knowledge in the areas of financial planning, analysis, control, decision support, and professional ethics. There are many professional bodies globally that have management accounting professional qualifications. The main bodies that offer the CMA certification are:

  1. Institute of Management Accountants USA;
  2. Institute of Certified Management Accountants (Australia);
  3. Certified Management Accountants of Canada.
<span class="mw-page-title-main">Valuation (finance)</span> Process of estimating what something is worth, used in the finance industry

In finance, valuation is the process of determining the value of a (potential) investment, asset, or security. Generally, there are three approaches taken, namely discounted cashflow valuation, relative valuation, and contingent claim valuation.

<span class="mw-page-title-main">Forensic accounting</span> Branch of accounting which investigates financial misconduct and fraud

Forensic accounting, forensic accountancy or financial forensics is the specialty practice area of accounting that investigates whether firms engage in financial reporting misconduct, or financial misconduct within the workplace by employees, officers or directors of the organization. Forensic accountants apply a range of skills and methods to determine whether there has been financial misconduct by the firm or its employees.

<span class="mw-page-title-main">Association of Chartered Certified Accountants</span> Global professional organization

Founded in 1904, the Association of Chartered Certified Accountants (ACCA) is the global professional accounting body offering the Chartered Certified Accountant qualification (ACCA). It has 240,952 members and 541,930 future members worldwide. ACCA's headquarters are in London with principal administrative office in Glasgow. ACCA works through a network of over 110 offices and centres in 51 countries - with 346 Approved Learning Partners (ALP) and more than 7,600 Approved Employers worldwide, who provide employee development.

<span class="mw-page-title-main">South African Institute of Chartered Accountants</span> Institute in South Africa

The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The institute provides a wide range of support services to more than 48,000 members and associates who are chartered accountants (CAs(SA)), as well as associate general accountants (AGAs(SA)) and accounting technicians (ATs(SA)).

The Certified Fraud Examiner (CFE) is a credential awarded by the Association of Certified Fraud Examiners (ACFE) since 1989. The ACFE association is a provider of anti-fraud training and education. Founded in 1988 by Dr. Joseph T Wells. The ACFE established and administers the Certified Fraud Examiner (CFE) credential.

The School of Accounting and Finance (SAF) at University of Waterloo is a professional school within the Faculty of Arts. The School was established in 1980 under the name 'School of Accountancy'. Its name was changed in 2008 to better reflect its program offering. Today, more than 1,600 students are enrolled in the School's programs. In September 2009, a new 52,000 square feet (5,000 m2) building was officially opened to house the School.

<span class="mw-page-title-main">Uniform Certified Public Accountant Examination</span> Exam

The Uniform Certified Public Accountant Examination is the examination administered to people who wish to become U.S. Certified Public Accountants. The CPA Exam is used by the regulatory bodies of all fifty states plus the District of Columbia, Guam, Puerto Rico, the U.S. Virgin Islands and the Northern Mariana Islands.

Business Valuation Standards (BVS) are codes of practice that are used in business valuation. Examples of business appraisal standards are as follows:

A Certified Government Financial Manager (CGFM) is a professional certification issued by the Association of Government Accountants (AGA) in the United States. It was created in 1994 to provide a professional standard of financial expertise and ethics in government and a standard by which government financial management professionals are measured. Its education, experience and ethics requirements have served to elevate the most seasoned financial professionals.

Accounting ethics is primarily a field of applied ethics and is part of business ethics and human ethics, the study of moral values and judgments as they apply to accountancy. It is an example of professional ethics. Accounting was introduced by Luca Pacioli, and later expanded by government groups, professional organizations, and independent companies. Ethics are taught in accounting courses at higher education institutions as well as by companies training accountants and auditors.

Certified in Financial Forensics (CFF) is a specialty credential in financial forensics issued by the American Institute of Certified Public Accountants (AICPA).

Whether providing services as an accountant or auditor, a certified public accountant (CPA) owes a duty of care to the client and third parties who foreseeably rely on the accountant's work. Accountants can be sued for negligence or malpractice in the performance of their duties, and for fraud.

References

  1. ↑ "So That's Why It's Called a Pyramid Scheme". Journalofaccountancy.com. October 2000. Retrieved 2012-03-10.
  2. ↑ "Federal Rules of Evidence #702". Federalevidence.com. Archived from the original on 2010-08-19. Retrieved 2012-03-10.
  3. ↑ UK Civil Procedure Rules Practice Direction Part 35 Paragraph 2.2 Archived December 28, 2010, at the Wayback Machine
  4. ↑ UK Criminal Procedure Rules 2010 Rule 33.2(1)
  5. ↑ Charrier, Emmanuel; Pélisse, Jérôme (November 2012). "Conventions at Work". Economic Sociology. 14 (1): 31–39.
  6. ↑ "Statement Of Retained Earnings Definition". Investopedia. Retrieved 2012-03-10.
  7. 1 2 3 4 Altman, Edward I. (1968). "Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy". The Journal of Finance . 23 (4): 589–609. doi:10.2307/2978933.
  8. 1 2 3 Dr. Apurva Joshi. "Forensic Rating Model to identify creative accounting". India Forensic.
  9. ↑ Agarwal, Vineet; Taffler, Richard (2007). "Twenty-Five Years of the Taffler Z-Score Model: Does It Really Have Predictive Ability?". Accounting and Business Research (37): 285–300. doi:10.1080/00014788.2007.9663313.
  10. ↑ "Forensic Rating Model and the Importance of J Score". Regtech Times. 2021.
  11. ↑ CA Mayur Joshi. "Dealing with financial statement frauds with J-score". India Forensic.
  12. ↑ "Overview of CFAP". Thehindu.com. 2014-01-01. Retrieved 2014-01-02.
  13. ↑ http://abfa.us/becoming-a-certified-forensic-accountant/%5B%5D
  14. ↑ "Resources | ABFA.US".
  15. ↑ "American Board of Forensic Accounting". Abfa.us. Retrieved 2022-05-01.
  16. ↑ "ABFA Programs/Courses | ABFA.US".
  17. ↑ "Forensic Accounting Review (FAR) | ABFA.US".
  18. ↑ "Association of Certified Fraud Examiners". Acfe.com. Retrieved 2022-05-01.
  19. ↑ "Certified in Financial Forensics (CFF) Credential Overview". Aicpa.org. 2010-09-01. Archived from the original on 2013-08-19. Retrieved 2012-03-10.
  20. ↑ "Salary Survey, Compensation Data, Salaries, and Career Planning". SalaryExpert. Retrieved 2012-03-10.
  21. ↑ "NACVA". nacva.com.
  22. ↑ "Certified Valuation Analyst (CVA) Certification". accountingcareersfordummies.com.
  23. ↑ "The CCFA Designation – IICFA".
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.