Friday, August 30, 2019

Forensic Accounting: Scope, Skills and More!


Hi people! Welcome to our blog once again. Today we will be talking about Forensic Auditing, Scope of Forensic Accounting and Skills of Forensic Accountants.

FORENSIC AUDITING:



A forensic audit is an examination and evaluation of a firm's or individual's financial records to derive evidence that can be used in a court of law or legal proceeding. It is the specialization in the field of accounting and requires the expertise of accounting and auditing procedures as well as expert knowledge about the legal framework of such an audit. It covers a widespread range of investigative actions.
A forensic audit may be conducted to prosecute a party for fraud, embezzlement, or other financial crimes. In this process, the auditor may be called to serve as an expert witness during trial proceedings. It can also involve situations that do not involve financial fraud, such as disputes related to bankruptcy filings, business closures, and divorces.
This new form of auditing is designed to be used in litigation for claims of insurance, bankruptcy, embezzlement, computer fraud, and other related crimes. Computer crimes and financial fraud are carefully calculated, intuitive attacks by criminals. It requires more than just a basic set of standards; it requires intuition and investigating skills. Most of the large accounting firms like KPMG, Deloitte, PWC, EY, Grant Thornton LLP, etc provide forensic auditing services.



SCOPE OF FORENSIC ACCOUNTING:



Forensic Accounting is being evolved as an emerging platform for sceptical accountants. The scope of this services has grown up significantly due to various factors such as banking reforms in last 5 years. As many of our viewers were also asking about scope of these accountants earlier, we present you the scope of Forensic Accountants.
1) Bank Forensic Audits:

Talking about the recent scenarios, there has been a chaos in the Banking sector like Vijay Mallya case, PNB (Nirav Modi) case, Mehul Choksi’s case, etc case that has provided huge opportunities for the forensic accountants and auditors in India. The main work of these accountants in banks are to check for possible defaulters. Most of the Public Sector Banks require the forensic audits of their borrowers to be done to identify whether their business is profitable and they can pay back the credit. As the bankers are under continuous stress from various investigating agencies and laws, forensic accounting is becoming an essential.
2)Insolvency Cases:
After the above mentioned scams, the banks are now knocking the doors of the National Company Law Tribunal (NCLT) for further actions against the borrowers which are not paying their dues. Many of these cases are filed under the insolvency laws. The main work of the accountants is to find the amount of scam, damage to the parties, laws applicable for the crime, etc.
3) Economic Offenses Wings:
Pyramid schemes, ponzi schemes or money circulation schemes are some of the events where the forensic accountant comes in and solves the dispute. They partner up with local law enforcement agencies, economic offense wing and the company to assess the exact amount of damage borne by the company or the public. 
4) Serious Fraud Investigation Office:
The Serious Fraud Investigation Office (SFIO) is a statutory corporate fraud investigating agency in India. It is involved in major fraud probes and is the co-ordinating agency with the Income Tax Department and the Central Bureau of Investigation. The Forensic accountants play an important role in SFIO and corporate world. Sometime, the SFIO seeks the help from the forensic auditors to investigate various facets of the corporate frauds. Digital forensic plays a key role in such investigations.
5) Securities Exchange Board of India:
In the crackdown against the shell companies, fraudulent prospectus application and insider trading, SEBI, the regulatory body of capital market requires the help of forensic auditors. The SEBI can order forensic audit of these companies to know the insider facts. Here comes forensic auditor to help SEBI in this process.
Certified Forensic Examiner (CFE) are in great demand in India and the scope of forensic accounting and auditing services is going to increase as the reforms in Indian financial sector continues.

SKILLS TO BE POSSESSED BY FORENSIC ACCOUNTANTS:


1) Should have Communication Skills - Forensic accountants must be able to communicate the nature and extent of the work performed in a clear and understandable way. Also, he/she should be able to;
a. Confront hostile witness and suspects,
b. Establish rapport with strangers to find out insider information,
c. Conduct interrogations,
d. Adapt to different personalities according to circumstances.
e. Should be able to simplify the matter and report it to interested people and court.
2) Should have Investigative Mentality:
The forensic accountant should have a sceptical thought process. If they get satisfied easily, they won’t have investigative mentality and a forensic accountant can perform his job without an investigative mentality. Having a sceptical thought process helps them to gain the in-depth knowledge about the matter. Also, he/she should be able to simplify the matter to common understanding because people doing the frauds would have make it easy for themselves in a way which is very simplified for common public.
3) Should understand application of appropriate case:
The forensic accountants should know about the appropriate laws applicable in the given scenarios. They should have knowledge about those laws which puts them one step ahead making the process easy. Also, while explaining the case to the court, he should be able to state some sections in law against which the crime has been done.
Similarly, they should demonstrate the following;
  • Strong Knowledge of accounting and auditing,
  • Maths Skills – This is helpful so that they can crunch numbers quickly and analyse correctly,
  • Strong eye for details,
  • Expert with information and communication technology,
  • Must exhibit business and organizational expertise.

TEST YOUR SKILLS


Here is a link to a short quiz related to quantitative aptitude in Forensic Accounting Examinations, test your abilities, won't take more than 10 minutes.



PS: The answers for crossword puzzle of last blog have been published in the previous blog's comment section. Mr. Ravi Sharma's intellect is really appreciated because he has got almost all the answers right, and also a big thanks to the Anonymous users who have participated, your engagement is our motivation!

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Saturday, August 24, 2019

An Introduction to Forensic Accounting

Forensic Accounting is an accounting technique which uses accounting, auditing and investigative skills to conduct an examination from the root of the problem. It deals with the application of accounting facts gathered through auditing methods and procedures for those legal problems usually dealing with financial and valuation issues. It is frequently used in fraud, embezzlements and scam cases to find out the cause of the problem and explain it to the court and related parties.

Forensic accountants analyse, understand and recapitulate the complex financial and business dealings. They are generally employed by insurance companies, banks, police force, government agencies or public accounting firms. For example: If a one party in a contract defrauds the other party, a forensic accountants comes in to handle the matter and find the true cause.

EVOLUTION OF FORENSIC ACCOUNTING IN INDIA:


Forensic accounting was first mentioned by Chanakya’s eminent book “Arthashastra: forty ways of misappropriation”. Chartered accountants were present in the country, but they either helped people in doing the fraud or supressed the matter. So, there was a great need of accountants who could deal with fraudulent cases. Forensic Accounting was widely used in India after Enron case, Rajat Gupta case and Satyam Case.
There are very few chartered accountant firms like Sharad Joshi, S.K. Jain that have fraud examination as a separate practice. However, this area is by and large dominated by the big four consultancy firms such as Deloitte, KPMG, Price Waterhouse Coopers (PWC) and Ernst and Young. In India, the formation of Serious Fraud Investigation Office is the landmark creation for the Forensic Accountants. Section 211 and 212 in Companies Act, 2013 paved the way for a special approach to prevent economic fraud and preserving national wealth. Thus, forensic accounting was called for to detect planning and execution of the frauds and the culprits behind it.

A short video of how Forensic Accountants work:






ROLE OF FORENSIC ACCOUNTANTS:


1) Detective rather than Preventive:


Forensic accounting does not prevent frauds from happening always, it is actually about detecting frauds that are already happening i.e it does not guarantee that frauds will be prevented, but it makes sure that if a fraud or misappropriation is happening, then it is detected and rectified.


2) Identifier of Issue


Forensic accounting does a very deep analysis of the accounts of a firm, and actually points out the exact problem with the company’s accounts, so it makes sure that the issue with the accounts, i.e the origin of problem, accounts affected/manipulated, impact on financial position, etc is identified and deeply taken into consideration.

3)Gatherer of Information


To do what forensic accounting does, it is necessary to have each and every detail about the accounts of a firm, thus Forensic accountants have to gather a lot of information about the transactions that take place through the organization, in and out, all the source documents and the financial statements have to be rechecked.

4)Reporter and Expert Witness 


Forensic accountants are very good at reporting how a fraud or misappropriation took place, they can tell the exact origin of a fraudulent transaction and the exact impact of it on every aspect of business. In this process, they become Expert Eyewitnesses of the fraud because they have practically seen how everything was done form the eyes of accounts.

5)Analysis of the Document


Forensic accountants’ first trait is great analytical skills, all they have to do is actually analyse the documents, so most of the work is actually all about analysing the source documents in relation to their financial treatment and the significance of the changes/manipulations on such transactions.
 So, these are the roles of a forensic accountants.



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