Forensic accountants are a breed of accountants who play a role of accountants, auditors and investigators of possible fraudulent cases in a company. Forensic accountants work towards looking into the financial statements of the company and helping them prevent fraudulent cases by straightening their accounts. They work in the investigations and at times appear in the court as a witness in the fraud cases. Forensic accountants play a vital role in identifying malpractices by the managers in the company. (James, 2010).
A good forensic accountant is not good just because he/she is good in numbers. A forensic accountant should possess the skills of implementing his/her knowledge to its best and find accurate results, under the GAAP. The five major skills required by a forensic accountants are as follows: (Cited by Davis C., Farrell. R., Ogilby S., American Institute of Certified Public Accountants, 2010) 1). Analytical- A forensic accountant needs to possess the analytical skills as they need to analyze an accounting problem or issue to take corrective steps towards resolving it. A forensic accountant can only give solution and be a witness to the financial records if he/she can analyze it correctly. Hence the need to be analytical in a forensic accounting engagement is the initial and the most important overall skill without which other skills will not develop. 2). Inquisitive- An accountant should always enjoy complicated puzzles and brain teasers. This helps in ensuring that there is vast interest in solving crimes and finding the truth. A forensic accountant should be intrinsically motivated to find challenging cases and work towards solving them. This skill of a forensic accountant helps in promoting efficiency as the accountant is doing this duty not just for money but because he is interested in it. 3).
Ethical & Confident- A forensic accountant has to follow certain ethics to help his profession work with honest and in an unbiased manner. A forensic accountant should possess the skill of abiding by the ethics whatever the situation may arise. Working with confidence brings in enthusiasm and helps to face the situation in a positive manner. With increased knowledge comes improved intuition and hence ethics may sometimes be left behind. To avoid such situation characteristics of having strong ethics and confidence help in the long run. 4). Critical thinker and Detail oriented- A forensic accountant needs to be a critical thinkers. This is because he should have the capability to think in a manner that considers all the extreme possibilities. A critical thinking ability helps to take quick decisions and motivates to end with accurate results. Along with thinking critically it is also very important to value and pay attention to each and every minute details in a case. Smalls mistakes can cost a lot to the shareholders or the company. Hence to get accurate results, it is important to give a detail oriented report as a witness to the findings. 5). Communication- One of the most important skills that a forensic accountant should possess is the communication skills. No matter how analytical, intrinsic, intuitive, persistent the accountant is, if the communications of his interpretations is not clear the efforts put in are simply waste. Hence communication skills play a vital role in the day-to-day activities of a forensic accountant. The interpretations of the case if well communicated only then can help the attorney to win the case.
The role of a forensic accountant within a courtroom environment. Forensic accountants are becoming a core part of businesses every day, sheer due to its increased practicability in the business environment. A practice of forensic accountants helps the companies to boost transparency in the business, system of governance and retaining shareholders loyalty. (Cited in Crumbley, Heitger & Smith, 2007). Forensic accountants are basically charged with the job to unravel any cases of fraud in the financial sector. The main role of a forensic accountant in a courtroom is to act as a vital witness to fraudulent practices. As accountants by profession, forensics have a basic and deep knowledge of accounting and hence they can be trusted to analyze the malpractices and inconsistencies in the financial records of
the company. Hence they are valued as witness to the fraud acts within a company and hence required present in a courtroom to vertify the results and give more information if required on the investigation. Forensic accountants help in providing an expert advice and proof as a information in the case for further investigation by the attorney, judges or lawyers ( Stuart, 2006). Forensic accountants also work towards calculating the loss or damages in business. This helps in evaluating the claims from insurance companies. Forensic accountants in the court proceedings help the case by providing information and breaking in common man language for the solicitors to understand. The opinion of forensic accountants is expected to be fair to both sides of the case and should not be favoring any one side. This kind of results from forensics are accepted as true, reliable and certified to the findings on the case. Though the role of forensic accountants is different depending on different cases, the expertise and the experience that they bring together to defend a case is often immeasurably valuable. Ina courtroom environment a reliable expert is the first thing to be called for by the attorney while setting up his or her team (Elmore D.R.) The legal responsibility a forensic accountant while providing service to a business.
A forensic accountant is considered as a source of a better technical and accounting knowledge as compared to the understandings of legal counsels or other courtroom delegates. (Smith. B.). As a legal responsibility a forensic accountant is often employed for the purpose of coming up with data and the documentations which are admissible in the court. As such forensic accountants usually go through the financial records of the company as well as assist in the auditing process. Since the forensic accountants are authorized to produce documentation that are legally accepted sometimes they are required to be present in the court proceedings to give verbal testimonies and explanations on their findings. As a service to a business it is the legal responsibility of a forensic accountant to be accurate and detailed in their work. Their job requires a great capacity of analytical thinking and good communication skills to enable effective communication of findings. There are a number of scenarios where forensic accountants are useful. Most importantly, forensic accountants are used to calculate the economic damages and post-acquisition disputes. Similarly, a forensic accountant serves the business in calculating the business economic losses. A forensic accountant is an expertise in investigating and analyzing the financial information and hence can offer the most accurate, appropriate and detailed explanation of the available data. (Rothberg. A.F. , Managing Director of CFO Edge, LLC). Finally the major responsibility of a forensic accountant for the legal perspective is the Litigation support. Litigation support is a process by which the forensic accountant provide consultation and advice to attorneys. As a responsibility towards business, a forensic accountant can provide advice and help with settlement decisions and help in gaining the correct documentation in support of a legal claim. A forensic accountant proves to be very useful in the beginning stage of a legal dispute, as they carry out various reviews of the documents in the initial screening of the case and also by helping in the further findings by formulating key questions with regards to financial evidence. (Rothberg. A.F. , Managing Director of CFO Edge, LLC). The forensic accountants are always loyal while working for a legal proceeding for a company. They are expected to avoid giving one sided results or unlawfully betray their clients. As a legal responsibility they are expected to work professionally and be uninfluenced by anyone in supporting their results. (Rusell & Gordon, 2010). Two cases where forensic accountants have provided vital evidence in a case. Summary of the cases and the importance of the forensic accountants role during each case. 1). The Enron Case:
The Enron collapse is a major example of signifying the importance of a forensic accountant in large companies. (Cited in Crumbley, Heitger & Smith, 2007). Enron was performing well before its collapse as it was clear from the rising share prices on the New York Stock Exchange. There were false statements given by the managers of the company to its shareholders to gain potential investors to buy the stock. Due to this there was a steady rise in the prices of the companys share on stock exchange. The common named turned into a shareholder having no idea that he was investing in a loss making company. The company continued this fake profile until it was discovered by a financial analyst. After being reported that the company was not making profits, instead making heavy losses, the reports were made public. The company hence collapsed and the managers awarded themselves large benefits for the scheme that they had pulled off. Here came the role
of forensic accountants. The forensic accountants investigated in the case to find out the reason for the collapse of a large company. The company and its accountants had fraudulently made many manipulations in the accounts of the company to show increased profits in books to its shareholders.. The companys mangers and senior officials where hence found guilty when taken to court. 2). The Sunbeam Case: In 1997, Sunbeam was a firm manufacturing small appliances and exercised a practice of bill and hold. (Cited in Crumbley, Heitger and Smith, 2007). A company can only record or book its sales in the books when the goods are actually sold to customers or the retailers and they are out of the company warehouse or manufacturing unit. Until then the goods are calculated on the production cost. The trick that Sunbeam as a fraud act followed was that it accepted orders from customers and recorded them as sales, while the goods still being stocked in the warehouse. In this manner the profits were miscalculated on purpose as no accounting method allows recording the sales in this manner. This malpractice of the company was revealed and brought into notice by a financial analyst at Paine Webber investment firm and the stocks of the organizations were eventually devalued.
This practice of accounting called as bill and hold is not a legal practice. Hence it is counted in frauds towards the shareholders of the company. Therefore a law suit was filed by the shareholders and consumers. Sunbeams Auditing firm was also caught in the case as they are responsible to guide the company regarding accounting practices and to bring any malpractice to the notice of its shareholders. Shareholders have a complete right to ask questions and know the in and out of the company. Instead auditing firm Arther Anderson claimed that the accounts were well within the federal guidelines. Here came the forensic accountants in picture to investigate in the case and opened up stating that the numbers were mismatched deliberately. Ultimately in the law books and Securities Exchange Commision on further investigation concluded that the company was guilty. The CEO, Alfred Dunlop was fired and had to pay a huge fine of $500000. REFERENCES
Crumbley, D.L., Heitger, L.E., & Smith, G.S. (2007). Forensic and Investigative Accounting. London: CCH
Davis C., Farrell. R., Ogilby S., American Institute of Certified Public Accountants, 2010, Characteristics and Skills of Forensic Accountants. James A. (2010) DiGabriele, Applying Forensic Skepticism to Lost Profits Valuations, Journal of Accountancy, Retrieved 12 Sep 2012,http://www.journalofaccountancy.com;
Mark, N. (2011). Forensic Analytics: Methods and Techniques for Forensic Accounting investigations. New York. John Wiley & Sons
Rusell, L. & Gordon, V. (2010). Intellectual Property: Valuation, Exploitation, and Infringement Rights. Hoboken, N.J. Wiley
Stuart, P. (2006). A Moral Theory of White Collar Crime. Oxford. Oxford University Pres