The Impact of Forensic Accounting on Fraud Detection

The Impact of Forensic Accounting on Fraud Detection

Forensic accounting is something that utilizes accounting, auditing, and investigative skills to conduct a fraud examination into a company’s financial statements. Every organization is at a risk of financial loss due to fraud. An effective audit team helps mitigate this both internally and externally. It’s crucial that both teams have a thorough knowledge of both detection and prevention if the goal of fraud mitigation and eradication is to be achieved.

Forensic Accountant

Forensic accountant identifies illegal activity, discover and preserve evidence (Houck et al, 2006) and is thus important to distinguish the forensic auditor from the regular auditor. A well-known fact is that there has recently been fraud committed in both the private and public sectors. In both cases, the internal and external players have left a lot to be desired brought about by greed and the current global economic factors. This led to the birth of forensic accounting to deal with white collar crimes including but not limited to embezzlement, contract disputes, money laundering, and security fraud among others. The forensic accountant provides investigative forensic accounting and offers litigation support in these cases.

Difference between an auditor and a forensic accountant

It has to be noted that there is a difference between an auditor and a forensic accountant. While an auditor determines compliance in accordance to the audit standards and considers the possibility of fraud, a forensic accountant has a more concentrated focus on detecting and deterring of fraud; (Crumbley and Apostolou, 2005). By clearly disambiguating the two individuals, bias is avoided by intertwining their roles and clearly understanding the specific and exact roles in fraud detection and mitigation.

The roles and know-how of forensic accountant

Roche gives the description of a forensic accountant as an individual who despite the face value of the findings presented, goes ahead and questions the truthfulness of the data presented from what is presented by conducting detailed interviews of stakeholders to develop the truth especially if there is a presumption that the individuals may be lying.

Professionally, a forensic accountant is an individual who specializes in fraud detection, documenting the exact documents with sufficient evidence required for successful criminal prosecution. They should be able to work in the most complex regulatory and litigation environments. The role of the forensic accountant is to fully examine all the documents of the organization.  They can reconstruct deceptive, missing or destroyed accounting records and pinpoint the root of the entire financial report or account record. Forensic accountants, in addition, have an economic and an appraiser’s points of view (Bologna and Lindquist, 1995).

As an economist, they are well aware of the loss, social harm and damage estimates. They can use assumptions, algorithms, and econometric models; can measure the loss of goodwill and reputation.

As an appraiser, the forensic accountant should be able to express well-informed opinions on matters of business value on the basis of generally accepted theories. They can evaluate historical and projected propensities of risk and return of any and all financial transactions of assets, equities, and taxes including those of any going concern.

The follow-up and doggedness of a suspicion are after all that which sets aside forensic accountants from auditors (Bologna and Lindquist, 1995).

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