OBJECTIVES OF WRITING THIS ARTICLE: Forensic accounting(F.A.)
has come into limelight due to rapid increase in financial frauds and
white-collar crimes. But it is largely untrodden area in India.The
integration of accounting, auditing and investigative skills creates the
speciality know as F.A.The opportunities for the Forensic Accountants
are growing fast;they are being engaged in public practice and are being
employed by insurance companies, banks, police forces, government
agencies etc.This article seeks to examine the meaning and nature,
activities and services rendered, core knowledge and personal skills
required for forensic accounting as a specialized field in accountancy
profession. Indeed there is a future in F.A. as a separate niche
consulting.
The lack of respect and belief in India's law
enforcement agencies and the rate at which white-collar crimes have
increased has prompted the development of Forensic Accounting in India.
The fraud detecting agencies seems to lack time and devotion needed for
detecting and prevention of errors and fraud. According to a large
global accounting firm, the market is sufficiently big enough to
maintain an unit devoted entirely towards "forensic accounting". Many
large as well as small accounting firms as well as the tiny firms have
inculcated or rather developed separate forensic accounting departments.
We
were of the belief that detection and prevention of frauds or
white-collar crimes is part of conventional accounting function. It was
thought that the frauds, both internal as well as external has be to
detected by the auditors through their periodic audit. Now it is crystal
clear that auditors can only check for the compliance of a company's
books to generally accepted accounting principles, auditing standards
and company policies. Hence the need was felt to detect the frauds in
companies that are suspected to be engaged in fraudulent transactions.
This field of accounting is known as "forensic accounting".
The
litmus test of investigation, first introduced by the ever great
Sherlock-Homes(considered by many as the father of Forensic Accounting)
is perhaps the first ever application of forensic accounting. Though,
the contribution of the other few great historians to the field of
forensic accounting cannot be overlooked. They used various tricks to
investigate various crimes.
F.A. is a specialized a area of
accounting practice that describes engagements which result from actual
or anticipated disputes or litigation. The word "forensic" means
"suitable for use in court". The forensic accountants have to keep in
mind this statement while they have to work or chalk out their
programme. The F.A. work is tailor made according to the situation and
need. The gathering of information and evidences is done according to
the need and situation. We can say, it is customized according to the
situation. The forensic-accountants give expert evidence at the ultimate
trial. All the modern medium-sized as well as the large-sized
accounting firms have specialized forensic accounting departments.
Within these firms there may be specialized forensic accounting
departments. Within these groups their may be further
sub-specializations. Various sub-specializations include insurance
claims, personal injury claims, fraud detection, construction or royalty
audits. Nearly 40 percent of the top 100 US accounting firms are
expanding their forensic and fraud services, according to Accounting
Today. Now if we consider this data as significant then we can say that
the total contribution of forensic accounting to the total revenue of
the C.A. firms would be highly significant in the years to come. Under
rising instances of frauds and litigation and flourishing businesses
these services are considered to be very significant as they are
rendered at a very competitive price.
The forensic accountants
utilize the various information relating the business, utilizes
financial reporting systems, various accounting and auditing standards
and procedures, investigative techniques and litigation processes and
procedure to perform their work. By acting as advisors to audit
committees and assisting in investment analyst research, they are
playing more "proactive" risk reduction roles.This is possible by
designing and performing extended procedures as part of the statutory
audit. The objectives of such an accounting include measurement of
losses caused by an auditor due to his negligence, to look into the
matter whether their has been any embezzlement of cash, the amount,
necessity of criminal proceedings, computation of asset values in a
divorced proceeding.
The primary approach technique of forensic
accounting is explanatory analysis(cause and effect)of the
phenomena-including the discovery of deception(if any), and its effects
-introduced into an accounting system field. The primary methodology
employed by the forensic accountants is the verification of the
objective. They are trained to deal with real world business and do have
the sufficient expertise to look beyond(behind) the numbers. The scope
of the forensic accountants are growing at a rapid pace. The increase in
their work opportunities have been accelerated due to the fall of the
Enron corporation and the collapse of the American Twin Towers.
This
has led to increase in the demand for American forensic accountants. So
as far India is concerned, formation of Serious Fraud Investigation
Office(SIFO) is a landmark creation so far as forensic accountants are
concerned. Failure of regulators to track security scams, increasing
cyber crimes, chain of cooperative banks bursting -all point to the ever
increasing need for forensic accountants. Our understanding of the need
for forensic accountants is immaterial here. In India due to the
growing number of frauds the need for forensic accountants is ever
increasing. The regulatory and administrative agencies will put pressure
for greater demand of forensic practices. This has been initiated due
to the changing nature of Indian and International accounting.Auditing
and assurance standards also confirm this. A change in the curriculum
can be initiated if the written exams and practical industrial training
are boosted to show the "new knowledge base and skill-set" required by
the professional accountants in the new era. It is therefore recommended
that the "forensic accounting and auditing" be introduced as a paper in
the various professional examinations conducted by the various
accounting bodies in India. Unfortunately forensic accounting is largely
an unexplored area as far as India is concerned. The chartered
Accountants(CAs) deal with such cases in an irregular fashion. In the
western counter-part(countries), the Lawyers, police, insurance
companies, government and regulatory bodies, banks, courts and business
communities are increasingly utilizing the services of the forensic
accountants.The accountants and the auditors must have the skills and
expertise to venture into the emerging field of forensic accounting.
What
Is Forensic Accounting? The growing needs of corporations has changed
the definition of forensic accounting. As per Bologna and Indquist, "the
application of financial skills and an investigative mentality to
unresolved issues, conducted within the context of rules of evidence.It
is a new emerging field that encompasses financial expertise, fraud
knowledge, and a sound knowledge and understanding of business reality
and the working of the legal system."It means that the forensic
accounting should be skilled not only in financial accounting but also
internal control systems, the legal matters, other institutional
requirements, investigative blend of mind and interpersonal skills.
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