“Forensic”, according to the Webster’s Dictionary means, “Belonging to, used in or suitable to courts of judicature or to public discussion and debate.” Forensic accounting is the practice to undertake accounting, auditing and investigation as a means to conduct a thorough examination of the company’s financial statements and recordings. The analysis so drawn is suitable for court and ultimately forms the basis of dispute resolution. Forensic accounting acts as both, litigation support and investigation accountancy.
Forensic accountants are trained to look beyond the numbers and into the actuality of the business concern. Their skills are often used in detecting fraudulent cases. The forensic accountants collect suitable financial evidence, develop them by summarising the data into computer applications and present them in the form of reports or presentations. They may be hired by insurance companies, banks, public sector undertakings, and police forces etc. along with testifying in court, forensic accounts may prepare visual aid in order to support trial evidence. They also conduct a business investigation by making a due diligence report, tracing the funds, identifying and assessing the assets, etc.
Importance of Forensic Accounting Services
- Usage in the litigation process
When the quantification of damages or compensation is required as a means to resolve a dispute, forensic accounting comes to play. Also, the forensic accountant may act as an expert witness when a dispute turns into a court decision.
- Usage in investigation accountancy
Forensic accounting is used in determining the occurrence of a criminal matter. The crimes falling in this category include theft, window dressing and falsifying of financial statements, insurance fraud, securities fraud, business valuation dispute, product liability claim, trademark or patent infringement, and non-competition agreement, etc.
Other than business-related matters, the forensic accountant may be employed for civil matters, such as detection of hidden property in case of the divorce settlement, breach of contract, tort, and breach of warranty, etc.
It can also be used in determining the impact of a breach of non-disclosure or non-competition agreements on the economy and trade practices as a whole.
- Usage in an insurance company
A forensic accountant is employed in certain cases to determine the quantum of damage arising out of a vehicle accident or medical negligence. The forensic accountant must have the knowledge regarding the legislative proceedings related to these cases. The forensic accountant determines the damage by reviewing both the insurance policy provided by the insurer and the loss incurred by the insured. Thus, the service of a forensic accountant is utilised by both the insurer and the insured.
Certified Forensic Accounting Professional (CFAP) is a person who has undergone training to become an expert in the field of forensic accounting, forensic auditing, litigation support and investigative accounting.
It is crucial in determining the quantum of damages to be paid and to detect the fraudulent activities within an institution, particularly in a court proceeding. Though an emerging field, its importance is being recognised by various institutions providing training and education in India. When fully functional, forensic accounting would ensure transparency and just determination of compensation or damages.