CORPORATE ACCOUNTING

FORENSIC ACCOUNTING

NAME : HARIPRIYA KIRAN GAIKWAD

CL
AS
DIVISION
S : :
C
S.Y
RO.
LL
B.Com

NO
. :
43
Forensic Accounting is defined as,"the application of investigative and analytical
skills for the purpose of resolving financial issues in a manner that meets standards
required by courts of law. Forensic Accountants apply special skills in accounting,
auditing, finance, quantitative methods, certain areas of law, research cod
investigative skills to collect, analyse and evaluate evidential matter to and to
interpret and communicate"
 FEATURES
i) Forensic Accounting is a combination of accounting and investigative techniques used to discover
financial crimes.

ii) One of the key functions of forensic accounting is to explain the nature of a financial crime to the
courts.

iii) Forensic Accounting is used by the insurance industry to establish damages from claims.

iv) Forensic Accounting for Litigation Support: Forensic Accounting is utilised in litigation when
quantification of damages is needed. Parties involved in legal disputes use the quantifications to assist in
resolving disputes via settlements or court decisions. For example, this may arise due to compensation
and benefit disputes. The Forensic Accountant may be utilised as an expert witness if the dispute
escalates to a court decision.

v) Forensic Accounting for Criminal Investigation: Forensic Accounting is also used to discover whether a
crime occurred and assess the likelihood of criminal intent. Such crimes may include employee theft,
securities fraud, falsification of financial statement information, identify theft or insurance fraud.
Forensic Accounting is often brought to bear in complex and high profile financial crimes.

vi) Areas of Forensic Analysis: Forensic Accounting professionals are skilled at quantifying damages and
determining the full extent of loss. They are involved in four basic areas of forensic analytics viz. data
collection, data preparation, data analysis and reporting.
vii) Forensic Accounting is different from Internal Auditors : Forensic Accounting and fraud
IMPORTANCE
investigation methodologies are different from internal auditing. Thus Forensic Accounting services and
practice should be handled by forensic accounting experts, not by internal auditing experts. Forensic
Accountants may appear on the crime scene a little later than fraud auditors, but their major contribution is
in translating complex financial transactions and numerical data into terms that ordinary laypersons can
understand. That is necessary because if the fraud comes to trial, the jury will be made up of ordinary
laypersons. On the other hand, internal auditors move on checklists that may not surface the evidence that
the jury or regulatory bodies look for. The fieldwork may carry out legal risks if internal auditing checklists
are employed instead asking a forensic accountant and may result in serious consultant malpractice risks.

viii ) Forensic Accountant referred as Forensic Auditor : Forensic accounting, sometimes referred to
as financial forensics or forensic accountancy, is a specialty practice area where accounting skills are
utilised to investigate potential embezzlement of fraud through the analysis of financial information. This
information then eventually used in actual or anticipated legal proceedings, like litigation or disputes In
fact, the word "forensic" is defined by Merriam-Webster as "belonging to, used in, suitable to courts of
judicature or to public discussion and debate". In layman's terms, forensic accounting is the strategic
integration of accounting, investigating, and auditing, As such, forensic accountants are often referred to as
forensic auditors or investigative auditors.
ix) Some Fascinating Facts about Forensic Accounting:

Many forensic accountants today have become a CFE (Certified Fraud Examiner) or a CrFA (Certified
Forensic Accountant).

Expert witnesses are in high demand, as judges often make rulings based upon their findings.

Forensic accounting is used in both civil and criminal cases, as well as family law matters such as
divorce.

As fraud continues to grow, the forensic accounting field becomes more and more indispensable.

Technology has made fraud easier and thus creates a massive opportunity for forensic accountants to
utilize their expertise.

While technology has reduced the number of accountants used in the workplace, this reduction is likely
to lead to more fraud and theft.

Settling divorce disputes is one of the most common tasks for a forensic accountant.

Unlike an auditor, a forensic accountant is typically called upon once suspicion of fraud has been
detected.

Fraud-related engagements are necessary to unearth potential scandal within an organization.

 OBJECTIVES
Major Objectives of Forensic Accounting in an organisation are described as follows :

i) To look for evidence of unusual development in the accounting and financial system.

ii) To design accounting processes for verifying important premises and data.

iii) To perform audit type processes on a routine schedule in order to reduce

transaction processing risks.

iv) To cover a broad range of businesses and locations that require customary or
continuous surveillance of all transaction processing systems.

v) To assess working transactions for compliance with basic operating processes and
agreement.

vi) To perform thorough scrutiny and examination of financial payment dealings in the
accounting system to decide if they are standard or beyond company policy.

vii) To assess standard ledger and financial reporting system transactions for likely
unlawful tampering or falsification of information or accounts and its consequences on
the ensuing financial accounts.

viii) To assess in estimating the economic-damage and the ensuring insurance

demands that arise from catastrophes such as fires or other natural setbacks.

ix) To assess business ratings in consolidations and accomplishment.

 TYPES OF FORENSIC ACCOUNTING
1) Criminal Investigation Services:
Forensic Accountant involves the criminal investigation. Normally, most people thought that an auditor
is the one who performs fraud investigation or criminal investigation, but actually they are not. And the
one who performs a criminal investigation is a forensic accountant or sometimes called a forensic
investigator.
Forensic Science is a critical element of the criminal justice system. Forensic Accountants examine and
analyse evidence from crime scenes and elsewhere to develop objective findings that can assist in the
investigation and prosecution of perpetrators of crimes or absolve an innocent person from suspicion.
2) Dispute Resolution Services:
Dispute resolution is a term that refers to a number of processes that can be used to resolve a conflict,
dispute or claim. Dispute resolution processes are alternatives to having a court (state or federal judge
or jury) decide the dispute in a trial or other institutions decide the resolution of the case or contract.
In some companies the shareholders have some disputes with each other. And the problems are bigger
and bigger lead to a hard dispute. In this case, the engagement with forensic accounting may require to
figure out some object involved with the dissolution which majorly requires accounting skill.
3) Insurance Claim Review Services:
Review of claims by insurance companies to determine liability and amount of payment for various
services. The review may also include determination of eligibility of the claimant or beneficiary or if the
provider of the benefit is covered or not payable under another policy or determination that the service
Forensic accounting does play a very important role related to the insurance claim. Ranking from
the low claim, small accidents like motor and personnel injury to large claims like fire and
aviation. Sometimes, insurance claims and settlements involve reviewing and checking the
financial and accounting records, business performance review if it is involved with a business
interruption.

4) Fraud Investigation Services:

Fraud prevention and investigation and forensic professionals are involved in many civil and
criminal cases, utilising accounting, auditing and investigative skills, relevant to the country in
question, when conducting an investigation.

Forensic Accounting teams look beyond the numbers, deal with the business reality of the
situation and deliver independent opinions in clear terms.

Fraud investigation service includes computer forensic investigations in criminal cases, civil
litigation and employment proceedings, assessment of loss of profit and earnings claim;
quantification of commercial claim and royalty and licensing audits.

Fraud is the major expense to the company and it is the virus that is hard to investigate and
eliminate. The fraud investigation here could be performed in many different types of
organisations like corporate, public or private organisations.
 PRINCIPLES OF FORENSIC SCIENCES
1) Law of Individuality:

Every object natural or manmade, has all individuals which are

not duplicated in any other object. The individuality has been
verified in certain fields. The most extensive work has been
carried out in fingerprints. The law of individuality is of
judgemental importance in forensic science.

The principle of individuality as attributed to Paul L. Kirk (1963)

and is regarded as the building block for forensic science.
Individuality implies that every entity, whether person or object,
can only be identical to itself and so is unique.

2) Principle of Exchange:

The exchange principle is attributed to Edmond Locard. The

principle states that whenever two objects or subjects interact,
some sort of trace will be left behind. This is generally at the
crime scene.
many traces left behind and if interpreted properly they provide the most valuable
information. When a criminal or his instrument of crime come into contact with the
victim or the object surrounding him, they leave traces, and the criminal or his
instrument picks up traces from the same contact.

3) Law of Progressive Change:

"Every thing changes with the passage of time". Its impact on forensic science is
immense, The criminal, the crime scene and objects involved in the crime all undergo
changes, hence may become unrecognisable. Different objects change, although they
may change across different time spans. If an object is very durable it may be quite easy
use it for identification. If it is less permanent and its main features change during the
identification process it is not possible to answer the question of sameness.

4) Law of Comparison:

Different samples must only be compared to samples which are alike. In other words,
blood samples are compared to other blood samples, fibre are compared to other fibre,
and so forth. "Only the likes can be compared", is the law of comparison. It emphasises
the necessity of providing like sample and specimens for comparison.

5) Law of Analysis:

"The analysis can be no better than the sample analysed". The principle emphasises the
necessity of correct sampling and packaging for effective use of experts. The quality of
any analysis is determined by the quality of the sample under analysis, the chain of
custody, and the expertise of the individual who analyses it.
6) Law of Probability:

VALUATION CHALLENGES
Conclusions drawn from forensic analysis are dependent on the method used and its
advantages and disadvantages. This all has been taken into consideration. All the
identification, definite or indefinite, are made consciously or unconsciously, on the basis
of probability.

7) Law of Circumstantial Facts:

"Facts do not lie, men can and do". Hence the importance of circumstantial evidence is
as good as oral evidence. Oral evidence depends upon so many factors such as power of
observation, assimilation, auto suggestion. This concerned with eye witness testimony,
victim statements, and so forth. Anytime that people are called upon to provide
evidence there is a chance that the evidence they supply is not accurate. This can be
unintentional. e.g. through mistaken, observations, making assumptions or deliberate
e.g. lying or exaggerating.

In addition to the above, there is one more principle of forensic science which is
significant in criminal proceedings which is as under.

Locards Principle:

Sir Adman Locardo, a pioneer in criminology and forensic science, gave the basic
principle of forensic science every contact leaves a trace. This principle holds that the
perpetrator of the crime will bring something into crime scene and leave with something
from it. This principle is associated with the trace evidence collection at the crime scene.