What is Forensic Accounting?

The short, Google dictionary answer: “The use of accounting skills to investigate fraud or embezzlement and to analyze financial information for use in legal proceedings.”

The longer answer: The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct: “Forensic accounting services are nonattest services that involve the application of special skills in accounting, auditing, finance, quantitative methods and certain areas of the law, and research, and investigative skills to collect, analyze, and evaluate evidential matter and to interpret and communicate findings. Forensic services consist of litigation services and investigative services. Litigation services recognize the role of the member as an expert or consultant and consist of providing assistance for actual or potential legal or regulatory proceedings before a trier of fact in connection with the resolution of disputes between parties.”

In either case, forensic accounting helps clients get to the bottom of financial matters that just don’t “pass the smell test”.

What are the types of litigation services offered by forensic accountants?

Litigation services offered by forensic accountants fall into three categories:

1. Expert witness services are those litigation services where an opinion is rendered before a trier of fact as to the matter(s) in dispute based on a forensic accountant's expertise, rather than on his direct knowledge of the disputed facts or events.
2. Litigation consulting services are those litigation services that provide advice about the facts, issues and strategy of a matter. The consultant does not testify as an expert witness before the trier of fact.
3. Other litigation services are those litigation services where a forensic accountant serves as trier of fact, special master, court-appointed expert, or arbitrator (including serving on an arbitration panel), in a matter involving a client. These other services create the appearance that the forensic accountant is not independent.

Are forensic accountants only engaged to perform actual litigation services?

NO, forensic accountants are often engaged to perform investigative services, which include all forensic services not involving actual or threatened litigation, such as performing analyses or investigations that may require the same skills used in litigation services.

If the forensic accountant is initially engaged to serve as a non-testifying expert consultant, can that status later change?

YES, often times the initial meetings and strategy only call for the forensic accountant to work with his client as a non-testifying consultant but as the matter proceeds, the forensic accountant’s role might change to that of a testifying expert. So, changes often happen and are common.

What are the differences between forensic accounting and auditing?

In its simplest terms, virtually all audit engagements have a single objective of expressing one opinion on a whole set of financial statements, whereas each forensic accounting engagement is very uniquely focused on a client’s particular need(s) and the objective is usually to report recommendations or findings.

What are all those professional certifications following Mr. Gould’s name? Do they represent special types of education for forensic accountants?

YES, the certifications and their professional organizations are as follows:

• CPA—Certified Public Accountant— American Institute of Certified Public Accountants
• CFF—Certified in Financial Forensics— American Institute of Certified Public Accountants
• CFE—Certified Fraud Examiner— Association of Certified Fraud Examiners

In most cases, professional organizations require the holders of the certification to adhere to specific ethics requirements and professional guidelines and maintain their credentialed status through continuing education.

I am interested in engaging an accountant to perform investigative services. Are forensic accountants a good choice to perform these type services?

YES, two main areas of forensic accounting are litigation services and investigative services. The distinction between the two rests not so much on the work done but rather on whether or not litigation is contemplated or anticipated. Examples of financial cases that involve “investigative services” include determining a spouse’s assets in a divorce, investigating public corruption, tracing the source of funds in a complex theft, determining the extent of money laundering in trafficking cases, ascertaining the validity of specific representations in a corporate acquisition or merger, to mention a few.  Of course, the most common uses of forensic accountants stem from fraud cases.

What distinguishes a traditional accountant from a forensic accountant?

The emphasis of a traditional accountant is to convert raw financial data into information useful for decision makers, typically presented in the form of financial statements. Forensic accountants’ work product flows from the scope of the particular project, typically consisting of written or oral reports of findings, or recommendations, or both.