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What is Forensic Accounting?

For many of us, the term “forensic” conjures up images of television crime dramas like Law & Order and CSI. In fact, forensic accounting does have something in common with the work done by crime scene experts depicted on those shows. The evidence gained through forensic accounting must be both rigorous and objective enough to stand up under the scrutiny of a court of law.

Although this highly specialized area of accounting employs traditional accounting methods and tools, it is focused on gathering verifiable evidence. This is because professionals in this field are hired in anticipation that their work will be reviewed and contested by adversaries. Some even specialize in testifying in court proceedings.

There are two common reasons a forensic accountant may be hired. One is when an objective valuation is required, and the second is when there is a need to verify accountability.


Forensic accounting in valuation cases

There are many occasions in which parties may need to employ forensic accounting techniques to determine the objective value of a set of business or personal assets. These include legal proceedings such as bankruptcy, divorce or probate cases. Objective valuations are also a critical component of the due diligence requirements to conduct certain business transactions such as mergers and acquisitions, insurance underwriting, and financial investments.


Using forensic s to determine accountability

This area of forensic accounting focuses on the need to investigate or rule out possible financial deception. Accountants who specialize in this area may be asked to scrutinize accounting records to determine if embezzlement, value manipulation or money laundering has occurred. Another significant area of criminal activity which often requires forensic accounting is tax evasion.

If the accountant’s work reveals facts that indicate fraud, they use evidence from the accounting records to help determine who is responsible for the deceit. They are also often charged with determining the financial impact of these types of deception, as well as the damages resulting from assertions of breach of contract, negligence, or other similar claims.


Careers in forensic accounting

Many professionals who specialize in this field work at accounting firms, but there are a variety of other opportunities to explore. This rapidly expanding industry offers staff positions in entities such as banks, insurance companies, law firms, and other large corporate environments. Others may find interesting work at law enforcement agencies and in the public legal system.

Forensic accountants may increase their marketability and value to potential employers through both experience and specialization. While the starting pay for forensic accountants is good at around $50,000 per year, the potential skyrockets when the accountant gains expertise in intricate subject  areas such as global market valuations, in-depth knowledge of a particular industry, or geographic specialization.

If current trends are any indication, this is a field with the potential for continued long-term viability and growth. Governments around the world are focused on fighting corruption and terrorism, and business entities will always need expert advice to protect their interests and those of their shareholders. It is difficult to imagine a world in which one could not thrive as an expert in the field of forensic accounting.

About the Author

Zeshawn is a doctoral student in the Accounting & Management Department at the Harvard Business School. His research uses archival and field methods and covers managerial accounting topics including employee and organizational incentives, cost management and profitability analysis...

Read Zeshawn's full bio here...

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