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The main procedure in forensic accounting emphasizes in-depth interview techniques and data analysis, although it often uses general audit techniques such as checking reconciliation, confirmation, and so on. Forensic Accounting & Fraud Detection focuses on certain segments, such as income and expenses suspected of fraud or corruption, either from an insider or third-party reports (tip-off) or indications of fraud (red flags) and other clues.
An example of the application of forensic accounting is in the case of corruption. A corruption case is a financial dispute between the state and its citizens who have been officially appointed to manage the government. The dispute must be investigated by a judge in court. (Read More: The Need for Forensic Accounting and How a Forensic Accountant Is Different?)
So, the investigations carried out by accountants are essentially part of the duties of forensic accountants. For example, insurance companies use forensic accounting to detect fraud, and law firms use forensic accountants to identify assets during marriage in divorce cases.
A forensic accountant with expertise in conducting financial analysis can apply his knowledge in both civil and criminal cases, especially in cases related to fraud. Concerning fraud, a forensic accountant is usually asked to prove that fraud has occurred in terms of financial transactions and recordings. In proving a fraud, a forensic accountant can work with a digital forensic expert to help collect data and evidence recorded in a computer system.
Difference between a forensic accountant and a general accountant
Among the public, the term forensic accounting is often confused with the term audit. Although the subject may be the same, in the sense that an auditor may also have forensic accounting skills, in essence, the two terms have differences.
First, in terms of implementation time. An audit is identical to work that is routine, periodic, repetitive, or regular. Meanwhile, forensic accounting is a job that is incidental or casuistic (case by case). This means that a forensic accountant starts working if there are indications of fraud related to financial transactions.
Second, from the scope of the examination. Be it auditing or forensic accounting, the main activity is to conduct examinations. However, the object of audit examination is the financial statements as a whole. Meanwhile, the object of the forensic accounting examination is a specific part of the financial report which indicates that fraud has occurred.
Third, from the inspection output. The output of the audit examination is the general opinion or conclusion on the audited financial statements. Meanwhile, the output of the forensic accounting examination is the findings regarding the alleged fraud, including the value of the loss, the mode of the crime, and the perpetrator.
Fourth, in terms of inspection techniques. The audit implementation generally only relies on data analysis techniques from financial statements. Meanwhile, the implementation of forensic accounting in addition to data analysis also applies in-depth interview techniques to related parties. Along with the increasingly sophisticated modes of fraud, especially in the context of corruption, the development of Forensic Accounting Services in India is also growing rapidly. Various theories, methods, and new practice guidelines around forensic accounting have emerged. So, save your business from fraud and consult the experts to conduct forensic accounting.