Forensic accounting is a process concerned with the investigation of scams and various fraudulent actions regarding finance. Here forensic accountants conduct a comprehensive evaluation of the financial data to assess the irregularities in books of account.
This extensively used accounting procedure helps to resolve various financial conspiracies such as bankruptcy, fraud, money laundering, asset misrepresentation, security disputes, family disputes, loan defaults, etc. Keep reading to know more about this subject.
How Does Forensic Accounting Help Prevent Fraud?
In this process, specialised forensic accountants adopt different accounting principles in order to determine fraud. This includes document review, data analysis, interviews, observation, and so on. Besides, they use various tools such as financial ratios, statistical analysis, and accounting software for assessing the genuineness of the financial transactions and finding the patterns that signify fraudulent activities.
What Are the Areas of Operation for Forensic Accounting?
Following are the areas of operation of forensic accountants in accounting firms in Australia:
The investment establishments need forensic accountants for assessing the authenticity of a claim. Besides, they also compute the financial damage in some cases. Under such circumstances, they use a combination of prevailing conditions, past data, and future estimates to determine the damage. On that basis, accountants figure out the possible amount of claims.
Business Interruption Claims
It refers to the total loss experienced by a business owing to various uncertainties which cannot be controlled. This makes businesses seek financial coverage by availing various insurance plans. Here, forensic accountants determine fraud in those claims. Furthermore, they evaluate and compare the financial statement of that business before and after the interruption.
Hidden or Misappropriated Assets
Professional forensic accountants need to look for the assets which are either transferred or hidden by a person or entity.
Family and Marital Disputes
When it comes to family problems and spousal disputes, forensic accountants communicate with attorneys and clients to investigate fraudulent cases or embezzlement of assets in divorce or other family clashes.
Breach of Contract
Forensic accountants also compute the financial losses coming from contractual disputes. For this, they conduct a complete analysis of the entire contract to help the parties get the correct settlement.
Diversion of Funds
Forensic accounting helps figure out whether the prearranged funds are used to fulfil any other purpose. Here, they assess the financial statements and books of accounts to find out the fraud.
Sometimes, both people and organisations misrepresent their income and other financial details in order to lessen their tax obligations. Forensic accountants are also involved in determining various tax disputes.
Forensic accountants also conduct investigations on disputes arising between shareholders or business partners. For this, they scrutinise the financial statements to determine the issues involved in the conflict.
Forensic accounting is an important aspect of accounting as financial fraud can destroy a business completely. Thus, hiring forensic accountants is mandatory for a person running a business firm. However, before hiring, check their qualifications, reviews, and curriculum vitae.