The Evolution of Forensic Accounting

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What do false earnings reports, unreported debt, inflated asset reports, embezzlement, mis-stated earnings reports, and Ponzi schemes have in common? U.S. companies have perpetrated these examples of accounting fraud during the last 20 years. To fight these crimes that have cost people and corporations billions of dollars, law enforcement agencies and corporations are relying on the expertise of forensic accounting specialists. Learn more about how forensic accounting developed and how this field is evolving.

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Weaving Together a Multifaceted Approach to Financial Investigation

Although financial crimes and accounting fraud have existed for as long as currency has been in use, Price Waterhouse partner Maurice E Peloubet coined the term “Forensic Accounting. According to Ken Tysiac of Journal of Accountancy, Peloubet first used the term in his 1946 essay, “Forensic Accounting – Its Place in Today’s Economy.”

Forensic accounting weaves together auditing, accounting, research and investigation, uniting these pieces to create a comprehensive picture of a financial situation. A successful forensic accountant has the accounting experience needed to spot discrepancies, and also a mastery of how to conduct effective interviews that will lead to disclosure of information by those being interviewed.

Once investigators gather and analyze the information, law enforcement agencies can use this information to prosecute those who may be parties to the crime. Forensic accountants may often uncover where money has been hidden or spent, and courts can seize these assets during a conviction.

Prior to Peloubet, accountants served as expert witnesses in criminal and civil trials. In 1817 in Canada, Meyer v. Sefton was the earliest recognized case involving an accountant as an expert witness in North America, according to Phillip McClelland and Patricia Stanton in their article for the Journal of Forensic Accounting, “Forensic Accounting: It’s Positively Ancient.”

Forensic Accountants Evolve From Witnesses to Investigators

During the last 200 years, the number of accountants investigating financial fraud has increased and their responsibilities have shifted from being witnesses to investigators. Forensic accountants now serve as key members of law enforcement, insurance companies, government agencies, and public and private entities. The U.S. Bureau of Labor Statistics Occupational Outlook Handbook forecasts that jobs for accountants and auditors will increase 11 percent between 2014 and 2024.

According to the Association of Certified Fraud Examiners, forensic accounting professionals work in private practice and for management consulting firms, law firms, insurance companies, financial institutions, and public accounting firms. Some cases involve recovering hidden or embezzled funds perpetrated by business partners, spouses, employees, or other people. Other cases may involve insider trading and other securities frauds.

Building the Skill Set of a Forensic Accountant

A master’s degree in accounting with a specialization in forensic accounting can help accounting graduates expand their career opportunities. In the American Institute of Certified Public Accountants white paper “Characteristics and Skills of the Forensic Accountant,”  attorneys surveyed feel that the most important traits in a forensic accountant are ethics, attention to detail, and analytical skills. The attorneys also indicate that forensic accountants need to be able to simplify information and verbally communicate that information, as they often participate in depositions, hearings, and trials.

If you are seeking an exciting niche in accounting that involves investigation, analysis, auditing, and face-to-face interaction with legal teams and law enforcement, a forensic accounting career may be a good fit for your educational background and professional ambitions.