The Basics Of Forensic Accounting For Business Managers

Financial misconduct is the fastest growing business crime today. Forensic Accounting is the best tool to combact it.

Dishonesty and a lack of integrity are increasing rapidly in all areas of business today. They have such a damaging affect on businesses that many have been irrevocably damaged because of dishonesty within.

One part of business where crime is increasing the fastest is in Finance. Financial misconduct is the single most damaging type of in house crime that exists today. Two highly publicized examples of this are ENRON CORPORATION and WORLDCOM INCORPORATED. Only after a team of Forensic Accountants were called in were these multi-national companies able to remove and prosecute their respective offenders.

As a manager (in any size company), this should show you the importance of becoming familiar with this branch of accounting.



Forensic Accounting is a new area of Accounting that was developed recently to address this issue. While the study has been around for a long time (Sherlock Holmes' initial profession was forensic accounting), necessity has made it in high demand today.

All business managers should have a working knowledge of Forensic Accounting because financial misconduct can strike any business large or small and the consequences can affect all areas of a business, not just financial. Many businesses (large and small) are no longer operating because of dishonest bookkeeping. They just aren't as publicized. A basic definition of Forensic Accounting is that it's the practice of using accounting, auditing and investigation skills to assist in legal matters. The term forensic broadly means something is used in legal proceedings.

A Forensic Accountant student takes the usual accounting classes in addition to a couple of courses in Criminal Justice, Investigation plus Communication and Report Writing, When on a job, a Forensic Accountant not only sifts through a company's books to find any discrepancies but also interviews people (directly and indirectly) involved in that department and their coworkers. They are trained to listen and find any out of place comment. As investigators, this type of accountant would dig in all areas that they believe are pertinent and gather all the evidence. He (or she) then writes out a detailed report naming all the facts, naming all the evidence and revealing who's responsible. This Forensic Accountant is then fully prepared to testify to all this in court. They also investigate in order to prove that no wrongdoing occurred.

Another Investigative example of Forensic Accounting is to uncover any business owner's wrongdoing. Money Laundering is another common activity they are called in to expose. That, too, is presented to the court with the same degree of accuracy. Forensic Accountant is considered an expert witness and his testimony is treated as such.

Litigation is another area they cover. A couple divorcing may call in a Forensic accountant to go over the other spouse's accounts to make sure all assets are in plain sight. The IRS may call one in to check a company's books or if a company accepts government contracts, the principal may want a report by a Forensic Accountant to reassure the agency that there's no wrongdoing. As you can see, Forensic Accounting is a valuable tool. If a manager calls one in at the first inkling of financial misconduct, he may save the company and himself a lot of grief.

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