INTRODUCTION TO

FORENSIC ACCOUNTING

Introduction To Forensic Accounting

 LEARNING OUTCOME

• Able to define forensic accounting

• Describe the difference between forensic
accounting and auditing
• Explain the role of forensic accountant

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 Topic & Structure of the lesson

• Defining Forensic Accounting, Forensic Auditing

and Forensic Investigation
• Difference Between Forensic Accounting,
Forensic Auditing and Forensic Investigation
• Role of a Forensic Accountant in Fraud
Examination
• Role of a Forensic Auditor in the detection of
Fraud
• Knowledge and skills of a Forensic Accountant
• Opportunities in Forensic Accounting
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 Key Terms you must be able to
use
• Forensic Accounting
• Forensic Auditing
• Forensic Investigation
• Fraud Examination

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 SCOPE OF FORENSIC
ACCOUNTING

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 DEFINITION

Forensic accounting is the term used to describe the type of engagement. It

is the whole process of carrying out a forensic investigation, including
preparing an expert’s report or witness statement, and potentially acting as an
expert witness in legal proceedings.

Forensic investigation is a part of a forensic accounting engagement.

Forensic investigation is the process of gathering evidence so that the
expert’s report or witness statement can be prepared. It includes forensic
auditing, but incorporates a much broader range of investigative techniques,
such as interviewing witnesses and suspects, imaging or recovering computer
files including emails, physical searches of premises etc.

Forensic auditing is the application of traditional auditing procedures and

techniques in order to gather evidence as part of the forensic investigation.

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 FORENSIC ACCOUNTING
Forensic accounting is the application of accounting, tax, auditing,
finance, quantitative analysis, investigative and research skills, and
an understanding of the legal process for the purpose of identifying,
collecting, analyzing, and interpreting financial or other data or
issues in connection with:
1) Litigation services: providing assistance for actual, pending or
potential legal or regulatory proceedings before a trier of fact in
connection with the resolution of disputes between parties, or
2) Non-litigation services: performing analyses or investigations that
may require the same skills used in 1, above, but may not involve the
litigation process
It is also the application of investigative and analytical skills for the
purpose of resolving financial issue in a manner that meets the standard
required by courts of law

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 FORENSIC ACCOUNTING
LITIGATION SERVICES
• Forensic accounting litigation services are the
professional assistance accountants provide
related to the litigation process. These services
may involve accounting, financial, auditing,
tax, quantitative analysis, and investigative and
research skills, as well as an understanding of
the legal process to provide assistance for
actual, pending, or potential legal or regulatory
proceedings before a trier of fact in connection
with the resolution of a dispute between parties.
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 FORENSIC ACCOUNTING NON
LITIGATION SERVICES
Forensic accounting non-litigation services are
the professional assistance accountants provide
not related to the litigation process. These services
may involve accounting, financial, auditing, tax,
quantitative analysis, and investigative and
research skill as well as an understanding of the
legal process to provide assistance in connection
with matter or issues not involving the litigation
process

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 Fraud Fraud
Prevention
Examination
Fraud
Deterrence

Forensic
Fraud
Detection Accounting
Intellectual
Construction Environmental Estate/ Fraud Financial Government Property
Claims Claims Family Investigation Contract Contract Infringement
Valuation Disputes Claims Damages

Fraud Loss
& Costs
Recovery

Anti-fraud
Controls
Remediation

Anti-fraud
Education
& Training

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 Forensic Accounting Fraud Examination

 A broad discipline  A focused discipline

applying accounting relating entirely to the
skills to legal matters in issue of fraud
a wide range of issues
 Addresses a past event  Addresses past, present
and future events
 Uses financial  Uses financial and
information nonfinancial information

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 Forensic Accounting Fraud Examination
 Produces information  Produces information
about finances about finances, people and
their actions
 For use in judicial  For use in business & govt
proceedings internal proceedings and
private and judicial
proceedings
 A relatively small group  A large force fighting fraud
of practitioners in business and
government
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 FORENSIC AUDITING

Forensic auditing is a type of auditing that

specifically looks for financial misconduct,
and abusive or wasteful activity.

It is most commonly associated with

gathering evidence that will be presented
in a court of law as part of a financial crime
or a fraud investigation

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 ‘Forensic auditing’

The process of gathering, analysing

and reporting on data, in a pre-defined
context, for the purpose of finding facts
and/or evidence in the context of
financial/legal disputes and/or
irregularities and giving preventative
advice in this area.

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 Meaning of Forensic investigation

A forensic investigation is a process whereby a

forensic accountant carries out procedures to
gather evidence, which could ultimately be used in
legal proceedings or to settle disputes. This could
include, for example, an investigation into money
laundering. A forensic investigation involves many
stages (similar to an audit), including planning,
evidence gathering, quality control reviews, and
finally results in the production of a report.

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 FORENSIC INVESTIGATIONS
VS. FINANCIAL AUDITS
FORENSIC INVESTIGATIONS FINANCIAL AUDITS
• Forensic Accounting Investigators deal • Auditors examine the financial
with fraudulent financial reporting and statements in accordance with GAAP
misappropriation of assets and GAAS
• The work of Forensic accountants relates • The audit opinion is on the financial
to heightened awareness of specific statements taken as a whole
irregularities
• Forensic accountants' work serves the • Auditors' work serves public interest
interest of the parties that hire them.
• Forensic accountant's work supports the
work of the legal counsel or the board • Auditor's work stands on its own
• forensic accounting investigation there are
findings and recommendations
• At the end of the audit there is an
opinion

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 FORENSIC INVESTIGATIONS
VS. FINANCIAL AUDITS
• forensic accountants are concerned with • Auditors are concerned with errors
distinction between errors of judgement & and irregularities
deliberate misrepresentation • The relationship between the auditor
• relationship between the forensic and the client is one of openness and
accountant and the party investigated is full candor
usually adversarial • Audit work usually does not disrupt
• forensic accounting investigations, the work environment of the client
work can be disruptive • Clients always have a full
• forensic accounting investigations, the understanding of the scope and
party investigated may not have such objectives of the audit
understanding of the work • Audit work is usually coherent,
• Forensic accountant's work can be messy coordinated, and efficient.
with many blind alleys • Auditors often use attribute sampling
• Forensic accountants are more likely to for tests of control and variable
use discovery sampling and dollar-unit sampling for substantive tests
sampling • The auditor presumes the validity of
the documents and information
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 Role of the Forensic Accountant
in Fraud Examination
• Involves detailed investigation of situations where
fraud has already been identified or where fraud is
highly suspected
• Builds support for legal action against the person
committing the fraud by:
• Identifying the fraud
• Calculating damages caused
• Building both factual and testimonial evidence of fraud

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 Role of the Forensic Accountant
in Fraud Examination
Forensic accountants:
Examine 100% of fraud-related documents for accurately measuring cost
of the fraud
Are often asked to provide litigation support
Work on reconstructing account balances

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 Forensic audit & Statutory Audit
Basis Statutory Audit Forensic Audit
Objective Determine “True and Evaluating correctness of
Fair” presentation of the accounts & whether
financial statements. any fraud or negligence
has actually taken place.
Techniqu Procedures involved are Analyzing past
es “Substantive” and performance and
“compliance” Scrutinizing selected
transactions (having
material effect)
Period Transactions of a No limitation of period.
specified Accounting Accounts of previous years
Period are taken into (from starting) can be
consideration examined as well.
Adverse Negative opinion or Determining legal aspect of
findings, if qualified opinion fraud and finding out the
any expressed, with or persons responsible for
without quantification. such fraud

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 Forensic auditing
• Forensic auditing is commonly called upon when
there are large systems and corporate failures, or
when fraud is suspected.
• One of the fastest growing areas in public
accounting over past 10 years.

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 What forensic auditors do
• Investigative engagements:
– Fraud investigations — determining
existence, nature and extent of fraud and
funds tracing
– Business economic loss analysis —
contract disputes, product liability claims
etc.
• Litigation support:
– Review of evidence to form assessment of
case and identify areas of loss
– Obtain relevant evidence to support or
refute legal claims.
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 Typical approach to forensic
auditing assignment
• Hold a preliminary meeting with the client
• Perform an engagement acceptance check
• Perform a preliminary investigation
• Develop an action plan
• Obtain the relevant evidence
• Evaluate the evidence
• Prepare the report

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 Is forensic audit an assurance service?

Not necessarily. Type of engagement should be

clearly stated in the engagement letter.
• If it is an assurance engagement, the auditing and
assurance standards will apply.
• If it is a consulting or agreed-upon procedures
engagement, then cannot provide an opinion or a
conclusion, and the auditing and assurance
standards will not apply.

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 KNOWLEDGE & SKILLS OF
THE FORENSIC ACCOUNTANT
• Auditing skills
• Investigation knowledge and skills
• Criminology
• Accounting knowledge
• Legal knowledge
• Information technology
• Communication skills

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 OPPORTUNITIES IN FORENSIC
ACCOUNTING
• Forensic Accountants are employed by
public accounting firms’ forensic
accounting divisions; by consulting firms
specializing in risk consulting and forensic
accounting services; or by lawyers, law
enforcement agencies, insurance
companies, government organizations or
financial institutions.

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 KEY AREAS

• Valuations -determining the value of shares, businesses, partnerships,

intangibles, etc in dispute, lost or destroyed. The Forensic Accountant must
review information as both a financial analyst and as an investigating
accountant, making appropriate adjustments, where necessary, and
applying a generally accepted, or arguable, methodology to determine the
value.

• Professional Negligence -reviewing transactions and the actions, or

inaction, of various professionals to determine whether the parties were
negligent and, if so, to what extent.
When a review involves an accounting professional, a keen knowledge of
the applicable accounting standards and the prevailing law is required.
Therefore, the Forensic Accountant must have the ability to identify the
impact and timing of changes in law and procedures.

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 KEY AREAS

• Fraud - investigating frauds, and establishing procedures to prevent

or detect fraud.
Forensic Accountants are frequently called upon to investigate
frauds, identify the appropriate documentary evidence, quantify the
loss and to assist in the prosecution of those involved.

• Family Law Matters -assessing the existence, value and ownership

of the financial resources available to parties in matrimonial dispute.
This type of work requires excellent communication skills when
dealing with related party small family businesses where the
personal emotions of the parties involved as frequently the financial
information being considered frequently contains a mixture of
business and personal transactions with tax driven results.

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 QUESTIONS AND ANSWERS SESSION

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 NEXT SESSION

FRAUD

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