What is Forensic Accounting?

25 Apr 2019

When considering the role of a Forensic Accountant it is necessary to consider the term "Forensic Accounting", and what a Forensic Accountant does. 

It goes without saying that the forensic accountant is first and foremost an accountant; trained to produce a set of accounts; to deal with tax compliance and tax advisory issues; and to generally advise a client on the accounting and tax issues that impact or might impact upon them personally or corporately. 

So what does the inclusion of the word Forensic add to the term accountant?

Being cynical for a moment it helps sell / differentiate a service line. When I started doing this work 25 years ago the term Forensic accountant was not commonly used. It sounds interesting “Is it like CSI on the TV – do you deal with dead bodies?” I have been asked this more than once!

However, the origins of Forensic Accounting can be traced back much further than 25 years ago:

  • 1946 - Maurice Peloubet, an accountant from New York, published the article entitled “Forensic Accounting: Its Place in Today’s Economy”
  • 1824 - Newspaper advertisement in Glasgow, Scotland
  • 1817 - Meyer v Sefton first recorded case of an accountant giving expert evidence
  • Ancient Egypt - Scribes worked in Pharaoh's courts and were charged with fraud prevention and detection

What does a forensic accountant do?

The dictionary definition of Forensic Accounting is “The use of accounting skills to investigate fraud or embezzlement and to analyse financial information for use in legal proceedings”.

In my view forensic accounting is the use of accounting skills in a specific way to assist a specific audience. It does not have to be used in formal legal proceedings, but is often used in contemplation of formal proceedings being issued. 

It is part analysis of historic financial information and part crystal ball gazing. What would have happened but for the accident or breach and what might happen in the future? The assessment of which starts with an analysis of the past, which added to any other relevant evidence, is used to predict the future. Both historical analysis and prediction of the future have scope for subjectivity although much more so in the later.

In my experience the typical Forensic accountant is: 

(a) a problem solver who enjoys the analysis of numbers and wider supporting evidence in the quest for the answer,
(b) has a analytical approach to problem solving,
(c) can plan, process and understand large volumes of data, filtering out the relevant facts, and can explain complex matters in a clear and succinct manner, both in writing and orally,
(d) able to apply commercial experience to the problem solving exercise to ensure opinions and solutions are relevant and realistic,
(e) Is able to self critique their work to ensure a balanced opinion.