Do you know about - Forensic Accounting - a New Paradigm For Niche Consulting
Height Finance! Again, for I know. Ready to share new things that are useful. You and your friends.Objectives Of Writing This Article: Forensic accounting(F.A.) has come into limelight due to rapid growth 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 group institution and are being employed by insurance companies, banks, police forces, government agencies etc.This article seeks to survey the meaning and nature, activities and services rendered, core knowledge and personal skills required for forensic accounting as a specialized field in accountancy profession. categorically there is a future in F.A. As a isolate niche consulting.
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The lack of respect and belief in India's law obligation agencies and the rate at which white-collar crimes have increased has prompted the amelioration of Forensic Accounting in India. The fraud detecting agencies seems to lack time and devotion needed for detecting and stoppage of errors and fraud. Agreeing to a large global accounting firm, the store is sufficiently big adequate to speak 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 advanced isolate forensic accounting departments.
We were of the belief that detection and stoppage of frauds or white-collar crimes is part of approved accounting function. It was idea 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 commonly appropriate accounting principles, auditing standards and company policies. Hence the need was felt to detect the frauds in clubs 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 maybe 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 assorted tricks to explore assorted crimes.
F.A. Is a specialized a area of accounting institution that describes engagements which result from actual or improbable 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 Agreeing to the situation and need. The gathering of information and evidences is done Agreeing to the need and situation. We can say, it is customized Agreeing to the situation. The forensic-accountants give specialist evidence at the greatest trial. All the contemporary 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 added sub-specializations. assorted sub-specializations contain insurance claims, personal injury claims, fraud detection, construction or royalty audits. Nearly 40 percent of the top 100 Us accounting firms are addition their forensic and fraud services, Agreeing to Accounting Today. Now if we think this data as indispensable then we can say that the total contribution of forensic accounting to the total wage of the C.A. Firms would be very indispensable in the years to come. Under rising instances of frauds and litigation and flourishing businesses these services are determined to be very indispensable as they are rendered at a very competing price.
The forensic accountants apply the assorted information relating the business, utilizes financial reporting systems, assorted 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 speculation investigator research, they are playing more "proactive" risk reduction roles.This is inherent by designing and performing extended procedures as part of the statutory audit. The objectives of such an accounting contain determination 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 original arrival 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 law field. The original methodology employed by the forensic accountants is the verification of the objective. They are trained to deal with real world company and do have the adequate expertise to look beyond(behind) the numbers. The scope of the forensic accountants are growing at a rapid pace. The growth 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 growth in the request 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, addition cyber crimes, chain of cooperative banks bursting -all point to the ever addition need for forensic accountants. Our comprehension of the need for forensic accountants is immaterial here. In India due to the growing amount of frauds the need for forensic accountants is ever increasing. The regulatory and menagerial agencies will put pressure for greater request of forensic practices. This has been initiated due to the changing nature of Indian and International accounting.Auditing and insurance 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 assorted professional examinations conducted by the assorted 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 company communities are increasingly utilizing the services of the forensic accountants.The accountants and the auditors must have the skills and expertise to speculation 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 comprehension of company 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.
According to Aicpa: "Forensic accounting is the application of accounting principles, theories, and discipline to facts or hypotheses at issues in a legal dispute and encompasses every field of accounting knowledge: ' Similarly, forensic accounting is defined by Horty as:
"The science that deals with the relation and application of finance, accounting, tax and auditing knowledge to analyze, investigate, inquire, test and survey matters in civil law, criminal law and jurisprudence in an effort to gather the truth from which to render an specialist opinion."
In easy words, forensic accounting includes the use of accounting, auditing as well as investigative skills to support in legal matters.It comprises of two major components: litigation services, that recognizes the role of an accountant as an specialist advisor and investigative services, that uses a forensic accountant, s skills and may need inherent court-room testimony.
Investigation of theft and defalcation of corporate and individual assets are part of legal matters.They use their education as well as experience to discuss the facts, patterns of the theft or misappropriation.Business accounting systems are reviewed by the forensic accountants.They advise ways and means to solve and enhance the internal control and internal accounting system.This is adopted to prevent theft and fraud. Because of their specialist knowledge and educational background and experience their(forensic accountants) work is elevated to a new height.
Forensic accountants do not contest in cases.They act as fact finding devices, try trt to seek the real truth from the incommunicable facts.They escort their work in an unbiased and objective manner.They need legal knowledge, expertise, training and experience to perform their work in an efficient and real manner.Extensive knowledge in the field of commerce, legal, accounting as well an investigative blend of mind is needed to perform the work in a proper fashion.Expertise in litigation preserve and testimony in courts of law are also prerequisites of the forensic accountants.This is due to the fact that their work would many times be used in a court of law.The valuation of damages due to criminal and civil wrong-doings need to be done with perfection and for that presume knowledge of company valuation law is the most essential.
What exactly do the Forensic Accountants perform? Answer: They are trained to deal with real life company situations and are trained to look beyond the numbers.
Analysis, interpretation and summarization of complicated financial and company connected issues are foremost characteristics of this accounting/auditing profession. Familiarity with legal concepts and procedures is a must.Insurance companies, group practice, banks, police soldiery and government agencies are major employers of forensic accountants.
The assorted field of work encompassing the arena of a forensic accountant can be stated in points format as follows:
1) Financial evidence investigation and analysis.
2) amelioration of computerized software to help in the pathology and presentation of financial evidence.
3) Sharing their findings in the form of reports, slide shows or exhibits and documents collected.
4) To preserve trial evidence they prepare optic slides, support in legal proceedings, along with testifying in courts as an specialist witness.
If we want to say or rather point out the role performed by the forensic accountants in a nutshell, we can say as follows:
Measurement or to quantify the impact of lost earnings. Such as construction delays, stolen trade secrets, insurance disputes, damage/loss estimates, malpractice claims, worker theft, loss of profit, financial solvency reports, disturbance damages, loss of goodwill, recompense losses suffered in expropriation determination, assessment of the inherent company recompense costs and providing consultation on company defalcation minimization. Lease default damages, breach of contract, company interruptions, breaches of shareholders and partnership agreements, reconstruction of accounting records,
Investigation of misappropriation, assistance in establishing possession and agency of assets, industrial damages, professional negligence cases, partnership disputes, specialist evidence, fair value or fair store value and personal injury damages are included in industrial damages. Tax advocacy, compliance and report of financial statements, tax reporting and tax planning in such areas as wage as estate matters are included in tax matters. Analysis, interpretation, summarization, presentation of complicated financial and issues relating to the company for investigation is the role of a forensic accountant.
They carry out investigative accounting and contribute litigation support.
The services rendered by the forensic accountants are in great request in the following areas:
1) Fraud detection where employees commit Fraud:
Where the worker indulges in fraudulent activities:
Where the employees are caught to have committed fraud the forensic accountant tries to find any assets created by them out of the funds defalcated, then try request them and try to find out the incommunicable truth.
2)Criminal Investigation: Matters relating to financial implications the services of the forensic accountants are availed of. The article of the accountants are determined in preparing and presentation as evidence.
3) Outgoing Partner's settlement:
If the outgoing partner is not happy about his community he can employ a forensic accountant who will correctly collate his dues(assets) as well as his liabilities correctly.
4)Cases relating to professional negligence:
Professional negligence cases are taken up by the forensic accountants.
Non-conformation to commonly appropriate Accounting Standards(Gaas) or non compliance to auditing practices or ethical codes of any profession they are needed to portion the loss due to such professional negligence or shortage in services.
5) Arbitration service: Forensic accountants render arbitration and mediation services for the company community, since they undergo extra training in the area of alternative dispute resolution.
6) Facilitating community concerning motor vehicle accident: As the forensic accountant is well acquainted with intricacies of laws relating to motor vehicles, and other relevant laws in force, his services come to be indispensable in measuring economic loss when a vehicle meets with an accident.
7) community of insurance claims: insurance clubs engage forensic accountants to have an precise assessment of claims to be settled. Similarly, policyholders seek the help of a forensic accountant when they need to challenge the claim community as worked out by the insurance companies. A forensic accountant handles the claims relating to consequential loss policy, asset loss due to assorted risks, fidelity insurance and other types of insurance claims.
8) Dispute settlement: company firms engage forensic accountants to cope ageement disputes, construction claims, stock liability claims, infringement of patent and trade marks cases, liability arising from breach of contracts and so on.
9) conjugal dispute cases: Forensic accountants entertain cases pertaining to conjugal disputes wherein their role is merely confined to tracing, locating and evaluating any form of asset involved.
Core Knowledge Of Forensic Accountants:
A forensic accountant is improbable to be a specialist in accounting and financial systems. Yet, as clubs continue to grow in size and complexity, uncovering fraud requires a forensic accountant to come to be proficient in an ever- addition amount of professional skills and competencies. Here are some of the broad areas of beneficial expertise for a forensic accountant:
" An in-depth knowledge of financial statements and the potential to critically analyse them. These skills help forensic accountants to find abnormal patterns in accounting information and recognise their source.
" A appropriate comprehension of fraud schemes, along with but not little to asset misappropriations, money laundering, bribery, and corruption.
" The potential to realize the internal control systems of corporations, and to set up a control law that assesses risks, achieves administration objectives, informs employees of their control responsibilities, and monitors the potential of the programme so that corrections and changes can be made.
" Proficiency in computer and knowledge of network systems. These skills help forensic accountants to escort investigations in the area of e-banking and computerised accounting systems.
" Knowledge of science of mind in order to understand the impulses behind criminal behaviour and to set up fraud stoppage programmes that motivate and encourage employees.
" Interpersonal and transportation skills, which aid in disseminating information about the company's ethical policies and help forensic accountants to escort interviews and gather crucially needed information.
" appropriate knowledge of company.s governance policies and the laws that regulate these policies.
" Command of criminal and civil law, as well as, of the legal law and court procedures.
Personal Skills Required:
So what does it take to come to be a forensic accountant? In addition to the specialised knowledge about the techniques of finding out the frauds, one needs patience and an analytical mindset. One has to look beyond the numbers and grasp the substance of the situation. There is a need for the same basic accounting skills that it takes to come to be a good auditor plus the potential to pay concentration to the smallest detail, analyse data thoroughly, think creatively, possess base company sense, be proficient with a computer, and have excellent transportation skills. A "sixth"sense that can be used to reconstruct details of past accounting transactions is also beneficial. A photographic memory helps when trying to visualise and reconstruct these past events. The forensic accountant also needs the potential to speak his composure when detailing these events on the survey stand. Finally, a forensic accountant should be insensitive to personal attacks on his professional credibility. A fraud accountant (as forensic accountants are sometimes called) should also survey and listen carefully. By this, you can enhance your potential to detect lies whether they involve fraud or not. This is so because"not all liars are fraudsters, but all fraudsters are liars"(Wells).
According to a forensic accounting expert, "the traits of a forensic accountant could be compared to a well-baked pizza. The base of forensic accounting is accounting knowledge. Size and the extent of baking decree the potential of the pizza. A middle layer is a dispersed knowledge of auditing, internal controls, risk assessment and fraud detection. It is like the spread of the cheese in pizza. The toppings of this pizza area basic comprehension of the legal environment. The legal environment is indispensable in order to preserve the litigations. The cherry on the toppings of the pizza is a strong set of transportation skills, both written and oral. It is just the beautification part. excellent blend of the pizza base, cheese spread and good toppings makes the pizza yummy and the of company's the laws that Forensic Auditor perfects. It is a blend that will be in request for as long as human nature exists."
In addition to these personal characteristics, accountants must meet several added requirements to come to be flourishing forensic accountants, say a Certification, acknowledging his competence. One can learn forensic accounting by obtaining a diploma given by connection of Certified Fraud Examiners (Acfe) in the Us. Indian lesson of Acfe offers the procedure based on the white-collared crimes prevalent in Us, based on their laws. However, there is no formal body that provides formal education of the frauds in India. Also the formal certificate, one can deepen one's knowledge and edge one's skills in forensic accounting by undergoing training under an experienced forensic accountant, participating in assorted international conferences, reading relevant journals, books and other literature on forensic accounting.
To combat the frauds effectively one needs the active preserve of government at every stage. There are three-four such agencies in India, which are dedicated to the mission of combating frauds. Serious Fraud Office looks into violations of wage Tax, Fema, Rbi Act, etc.; Cbi (Economic Office Wing) deals with big financial frauds; Central Vigilance Commission deals with corruption. These are the major government agencies that combat frauds of different types. Unfortunately, there is no specialised education in case,granted by any of the Universities in the country. Recently, Tcs has also come out with software to combat money laundering and Subex Systems have designed software to combat the telecom frauds. Thus, combating the frauds with software has started picking up in India, with few big clubs like Acl and Idea, joining the race.
The Need For Niche Consulting:
The Cpa foresight Statement states: "The Cpas are trusted professionals who enable habitancy and organisations to shape their future. Combining comprehension with integrity, Cpas deliver value by: (a) communicating the total picture with clarity and objectivity, (b) translating corn plex information into indispensable knowledge, (c) anticipating and creating opportunities, and (d) developing pathways that transform foresight into reality1 It reflects the trend towards providing a broader range of insurance services. However, up-to-date corporate accounting scandals and the resultant outcry for transparency and honesty in reporting have given rise to two disparate yet logical outcomes. First, forensic accounting skills have come to be crucial in untangling the complicated accounting manoeuvres that have obfuscated financial statements. Second, group request for change and subsequent regulatory action has transformed corporate governance. Increasingly, company officers and directors are under ethical and legal scrutiny. Both trends have the base goal of responsibly addressing investors' concerns about the financial reporting system. Indeed, there is a future in forensic accounting as a separate"niche" consulting area in India. The need to specialise, otherwise known as Niche Consulting, is imperative to practising accountants because the fast-paced developments in company thereby request specialised knowledge and skills. While a majority of Cas have excellent analytical skills, they need to write back that 'forensic' services need 'specialised' training as well as real-life 'practical' corporate experience. There is a need for specialised information, not just audit and tax service. What clients seem to want are habitancy with unique sets of skills and experiences. With the maturing of the audit business, and the rapid amelioration of technology that makes existing services low cost and cheap, it appears that it is the right time now to gather those unique skills. To help practitioners move into 'niche' consulting, some professional organisations in the Us have concluded that: "Future success for the profession depends, in part, on how the group perceives the potential of Cpas. New efforts in consulting, specialisation and comprehension global company practices and strategies are determined crucial. We go out into the niche market, examining our strengths first. We go where the action is, only then we know we can adequately aid our clients and make money doing it." One area where 'niche' consulting is becoming the global trend is in "Forensic Accounting and Auditing' But the major request facing the Indian accountancy profession is: Are we ready to plunge to where the intriguing action is?
Forensic Accounting In India:
It is in an infancy state in India.It is still an untrodden area in India.But due to ever addition cases of bank & cyber-frauds its growing point cannot be denied.
One immediate landmark creation is "Forensic explore Foundation".They contribute preserve for investigation of fraud.They release one bi-monthly journal named as "White Crimes".It relates to forensic and economic crimes. an additional one international organization named as Kpng has set up investigation detection centre in India.. Networks Limited, a Delhi based organization, working in the similar field, they are also trying to innovate ways and means to detect financial irregularities and crimes in India.Serious Investigation Fraud Offices(Sifo), has been established in India for the same reason, i.e. Detection and stoppage of economic irregularities and crimes. The need for such bodies and the point of Forensic Accountants have been highlighted by L.N.Roy Committee.Lenin Parekh Committee has also expressed the view that one "fraud detection committee"need to be established. The main aim of such boards should be to prevent the interest of the stakeholders.
Conclusion:
Forensic accounting in India has come to limelight only recently due to rapid growth in white-collar crimes and the belief that our law obligation agencies do not have adequate expertise or the time needed to find frauds. A large global accounting firm believes the store is sufficiently large to preserve an independent unit devoted strictly to 'forensic' accounting. All of the larger accounting firms, as well as, many medium-sized and boutique firms have recently created forensic accounting departments.
Forensic accounting, in fact, integrates accounting, auditing, and investigative skills to escort an examination into a company's financial statements. Broad-based knowledge (within the themes listed above) is crucial to the success of entry-level forensic accountants. Because forensic accounting is relatively a new area of study, a series of working definitions and sharing of corporate experiences should be undertaken and encouraged to ensure a base understanding. Indeed, there is great future in forensic accounting as a separate"niche" consulting.
While the forensic accounting and auditing institution had commenced in the Us as early as '1995, the seed of this specialisation has yet to take off in India. Forensic accountants are only dealing with financial implications of the cases entrusted to them and not intriguing in auditing exercise. On account of global competition, the accounting profession must convince the marketplace that it has the "best-equipped" professionals to perform such services.
Forensic accountants are also increasingly playing more 'proactive' risk reduction roles by designing and performing extended procedures as part of the statutory audit, acting as advisors to audit committees, and assisting in speculation investigator research.
While majority of Cas have excellent analytical skills, they need to write back that 'forensic' services need 'specialised' training as well as real-life 'practical' corporate experience.
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References: -
1)Journal Of Forensic Accounting: Editor-In Chief: Crumbley D. Larry, Publisher: Inc.Edwards. R.T.
2)Journal Of The Chartered Accountant 2007, Pages: 1000-1010.Dr. Madan Bhasin, The Author is Head, Accounting Department, Mazoon College, Muscat, Sultanate Of Oman.
3)Referential Notes Of Prof. Dutta Kr. Uttam, Reader Deaprtment Of Commerce, Reader, University Of Burdwan.
4)Website access: http://www.wikipedia.com, accessed on 4th, February, 2008.
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