Forensic Accounting and Its Utility
The current trajectory of events in the fast-paced world of globalization and growth in information technology has resulted in the need for accounting professionals to be more proactive and efficient enough to provide an accurate and equitable analysis of the financial situation. Due to an unregulated increase in financial reporting discrepancies, white-collar crimes, and corporate frauds, the notion of forensic accounting has gained popularity nowadays. Since forensic accounting, the art and science of detecting and preventing financial frauds, plays a significant role in restoring the trust of accounting information users in auditors' reports, we’ll explain what it is and how it can be utilized?
Forensic Accounting - What It Is?
Every business requires to prepare and report accounting statements. However, there have been occasions where these annual statements and reports do not depict any financial fraud. As a result, the business and other stakeholders use forensic accounting to see if there is any financial misreporting or financial crime. Specifically, forensic accounting is a systematic approach to fraud prevention that involves gathering, monitoring, and analyzing financial and non-financial data. Although forensic accounting investigations are commonly utilized in legal proceedings, they are also used for crime prevention and compliance measures.
Forensic Accounting Utilities
Forensic accounting is utilized by government agencies, law enforcement authorities, insurance companies, independent adjustment companies, banks, and businesses of all sizes in situations where a more thorough investigation is required, such as:
In criminal investigations, forensic accounting is frequently utilized by law enforcement agencies to determine if a crime happened and evaluate the likelihood of criminal intent, including securities fraud, employee theft, identity theft, manipulation of financial statement information, and insurance fraud. Once done, forensic accountants offer recommendations in terms of what measures can be taken to reduce future risk or loss. They may also suggest strategies to prevent such breaches by boosting or strengthening internal security and highlighting red flags.
When the total value of financial losses needs to be assessed in court, forensic accounting is used. A forensic accountant may be utilized by the court system to assist in resolving settlement disputes by quantifying the damages suffered by the plaintiff. They may even be called to testify as an expert witness about the plaintiff's losses in order to support the court in determining a fair outcome. Forensic accounts demonstrate how they identified the subject by presenting any proof and analyzing financial documents.
Undoubtedly the forensic accounting industry will continue to see great demand in the future, especially with the introduction of new financial products and cryptocurrencies. The role of forensic accounting in scrutinizing financial transactions for fraud, embezzlement, Ponzi schemes, and other discrepancies will be crucial for financial safety and security. Finding the right forensic expert has become the need of the hour for businesses in the wake of the persistent volume and sophistication of corporate frauds and financial crimes.
Feel free to consult RSM UAE to discuss your forensic accounting concerns. RSM is one of the world’s leading audit, tax and advisory service networks, recognized for innovative solutions across the globe. RSM professionals can help your company undertake the granular analysis required for a comprehensive forensic accounting exercise.