Objectives Of Writing This Article: Forensic accounting(F.A.) has come into limelight due to rapid increase in financial frauds and white-collar crimes. But it is largely untrodden area in India.The integration of accounting, auditing and investigative skills creates the speciality know as F.A.The opportunities for the Forensic Accountants are growing fast;they are being engaged in collective institution and are being employed by guarnatee companies, banks, police forces, government agencies etc.This narrative seeks to inspect the meaning and nature, activities and services rendered, core knowledge and personal skills required for forensic accounting as a specialized field in accountancy profession. for real there is a hereafter in F.A. As a detach niche consulting.
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The lack of respect and reliance in India's law compulsion agencies and the rate at which white-collar crimes have increased has prompted the improvement of Forensic Accounting in India. The fraud detecting agencies seems to lack time and devotion needed for detecting and arresting of errors and fraud. According to a large global accounting firm, the market is sufficiently big sufficient to vocalize an unit devoted entirely towards "forensic accounting". Many large as well as small accounting firms as well as the tiny firms have inculcated or rather industrialized detach forensic accounting departments.
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We were of the reliance that detection and arresting of frauds or white-collar crimes is part of accepted accounting function. It was idea that the frauds, both internal as well as external has be to detected by the auditors through their periodic audit. Now it is crystal clear that auditors can only check for the yielding of a company's books to commonly suitable accounting principles, auditing standards and company policies. Hence the need was felt to detect the frauds in associates that are suspected to be engaged in fraudulent transactions. This field of accounting is known as "forensic accounting".
Forensic Accounting - a New Paradigm For Niche Consulting
The litmus test of investigation, first introduced by the ever great Sherlock-Homes(considered by many as the father of Forensic Accounting) is possibly the first ever application of forensic accounting. Though, the gift of the other few great historians to the field of forensic accounting cannot be overlooked. They used discrete tricks to explore discrete crimes.
F.A. Is a specialized a area of accounting institution that describes engagements which corollary from actual or imaginable disputes or litigation. The word "forensic" means "suitable for use in court". The forensic accountants have to keep in mind this statement while they have to work or chalk out their programme. The F.A. Work is tailor made According to the situation and need. The conference of information and evidences is done According to the need and situation. We can say, it is customized According to the situation. The forensic-accountants give scholar evidence at the extreme trial. All the contemporary medium-sized as well as the large-sized accounting firms have specialized forensic accounting departments. Within these firms there may be specialized forensic accounting departments. Within these groups their may be further sub-specializations. discrete sub-specializations include guarnatee claims, personal injury claims, fraud detection, construction or royalty audits. Nearly 40 percent of the top 100 Us accounting firms are addition their forensic and fraud services, According to Accounting Today. Now if we think this data as critical then we can say that the total gift of forensic accounting to the total earnings of the C.A. Firms would be highly critical in the years to come. Under rising instances of frauds and litigation and flourishing businesses these services are determined to be very critical as they are rendered at a very contentious price.
The forensic accountants utilize the discrete information relating the business, utilizes financial reporting systems, discrete accounting and auditing standards and procedures, investigative techniques and litigation processes and procedure to achieve their work. By acting as advisors to audit committees and assisting in venture examiner research, they are playing more "proactive" risk reduction roles.This is potential by designing and performing extended procedures as part of the statutory audit. The objectives of such an accounting include determination of losses caused by an auditor due to his negligence, to look into the matter whether their has been any embezzlement of cash, the amount, necessity of criminal proceedings, computation of asset values in a divorced proceeding.
The primary arrival technique of forensic accounting is explanatory analysis(cause and effect)of the phenomena-including the discovery of deception(if any), and its effects -introduced into an accounting theory field. The primary methodology employed by the forensic accountants is the verification of the objective. They are trained to deal with real world company and do have the sufficient expertise to look beyond(behind) the numbers. The scope of the forensic accountants are growing at a rapid pace. The increase in their work opportunities have been accelerated due to the fall of the Enron corporation and the collapse of the American Twin Towers.
This has led to increase in the question for American forensic accountants. So as far India is concerned, formation of Serious Fraud Investigation Office(Sifo) is a landmark creation so far as forensic accountants are concerned. Failure of regulators to track protection scams, addition cyber crimes, chain of cooperative banks bursting -all point to the ever addition need for forensic accountants. Our understanding of the need for forensic accountants is immaterial here. In India due to the growing amount of frauds the need for forensic accountants is ever increasing. The regulatory and executive agencies will put pressure for greater question of forensic practices. This has been initiated due to the changing nature of Indian and International accounting.Auditing and guarnatee standards also confirm this. A change in the curriculum can be initiated if the written exams and practical industrial training are boosted to show the "new knowledge base and skill-set" required by the expert accountants in the new era. It is therefore recommended that the "forensic accounting and auditing" be introduced as a paper in the discrete expert examinations conducted by the discrete accounting bodies in India. Unfortunately forensic accounting is largely an unexplored area as far as India is concerned. The chartered Accountants(Cas) deal with such cases in an irregular fashion. In the western counter-part(countries), the Lawyers, police, guarnatee companies, government and regulatory bodies, banks, courts and company communities are increasingly utilizing the services of the forensic accountants.The accountants and the auditors must have the skills and expertise to venture into the emerging field of forensic accounting.
What Is Forensic Accounting? The growing needs of corporations has changed the definition of forensic accounting. As per Bologna and Indquist, "the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of rules of evidence.It is a new emerging field that encompasses financial expertise, fraud knowledge, and a sound knowledge and understanding of company reality and the working of the legal sytem."It means that the forensic accounting should be skilled not only in financial accounting but also internal operate systems, the legal matters, other institutional requirements, investigative blend of mind and interpersonal skills.
According to Aicpa: "Forensic accounting is the application of accounting principles, theories, and discipline to facts or hypotheses at issues in a legal dispute and encompasses every branch of accounting knowledge: ' Similarly, forensic accounting is defined by Horty as:
"The science that deals with the relation and application of finance, accounting, tax and auditing knowledge to analyze, investigate, inquire, test and inspect matters in civil law, criminal law and jurisprudence in an endeavor to regain the truth from which to render an scholar opinion."
In easy words, forensic accounting includes the use of accounting, auditing as well as investigative skills to aid in legal matters.It comprises of two major components: litigation services, that recognizes the role of an accountant as an scholar consultant and investigative services, that uses a forensic accountant, s skills and may wish potential court-room testimony.
Investigation of theft and defalcation of corporate and private assets are part of legal matters.They use their schooling as well as taste to discuss the facts, patterns of the theft or misappropriation.Business accounting systems are reviewed by the forensic accountants.They recommend ways and means to solve and improve the internal operate and internal accounting system.This is adopted to forestall theft and fraud. Because of their scholar knowledge and educational background and taste their(forensic accountants) work is elevated to a new height.
Forensic accountants do not contest in cases.They act as fact looking devices, try trt to seek the real truth from the incommunicable facts.They show the way their work in an unbiased and objective manner.They need legal knowledge, expertise, training and taste to achieve their work in an sufficient and real manner.Extensive knowledge in the field of commerce, legal, accounting as well an investigative blend of mind is needed to achieve the work in a proper fashion.Expertise in litigation sustain and testimony in courts of law are also prerequisites of the forensic accountants.This is due to the fact that their work would many times be used in a court of law.The valuation of damages due to criminal and civil wrong-doings need to be done with perfection and for that infer knowledge of company valuation theory is the most essential.
What exactly do the Forensic Accountants perform? Answer: They are trained to deal with real life company situations and are trained to look beyond the numbers.
Analysis, interpretation and summarization of complex financial and company related issues are important characteristics of this accounting/auditing profession. Familiarity with legal concepts and procedures is a must.Insurance companies, collective practice, banks, police troops and government agencies are major employers of forensic accountants.
The discrete field of work encompassing the arena of a forensic accountant can be stated in points format as follows:
1) Financial evidence investigation and analysis.
2) improvement of computerized software to help in the analysis and presentation of financial evidence.
3) Sharing their findings in the form of reports, slide shows or exhibits and documents collected.
4) To sustain trial evidence they put in order visual slides, aid in legal proceedings, including testifying in courts as an scholar witness.
If we want to say or rather point out the role performed by the forensic accountants in a nutshell, we can say as follows:
Measurement or to quantify the impact of lost earnings. Such as construction delays, stolen trade secrets, guarnatee disputes, damage/loss estimates, malpractice claims, laborer theft, loss of profit, financial solvency reports, disturbance damages, loss of goodwill, compensation losses suffered in expropriation determination, evaluation of the potential company compensation costs and providing consultation on company defalcation minimization. Lease default damages, breach of contract, company interruptions, breaches of shareholders and partnership agreements, reconstruction of accounting records,
Investigation of misappropriation, assistance in establishing rights and group of assets, industrial damages, expert negligence cases, partnership disputes, scholar evidence, fair value or fair market value and personal injury damages are included in industrial damages. Tax advocacy, yielding and describe of financial statements, tax reporting and tax planning in such areas as earnings as estate matters are included in tax matters. Analysis, interpretation, summarization, presentation of complex financial and issues relating to the company for investigation is the role of a forensic accountant.
They carry out investigative accounting and contribute litigation support.
The services rendered by the forensic accountants are in great question in the following areas:
1) Fraud detection where employees commit Fraud:
Where the laborer indulges in fraudulent activities:
Where the employees are caught to have committed fraud the forensic accountant tries to uncover any assets created by them out of the funds defalcated, then try question them and try to find out the incommunicable truth.
2)Criminal Investigation: Matters relating to financial implications the services of the forensic accountants are availed of. The narrative of the accountants are determined in establishment and presentation as evidence.
3) Outgoing Partner's settlement:
If the outgoing partner is not happy about his settlement he can employ a forensic accountant who will correctly collate his dues(assets) as well as his liabilities correctly.
4)Cases relating to expert negligence:
Professional negligence cases are taken up by the forensic accountants.
Non-conformation to commonly suitable Accounting Standards(Gaas) or non yielding to auditing practices or ethical codes of any profession they are needed to part the loss due to such expert negligence or shortage in services.
5) Arbitration service: Forensic accountants render arbitration and mediation services for the company community, since they feel extra training in the area of alternative dispute resolution.
6) Facilitating settlement about motor vehicle accident: As the forensic accountant is well acquainted with intricacies of laws relating to motor vehicles, and other relevant laws in force, his services come to be critical in measuring economic loss when a vehicle meets with an accident.
7) settlement of guarnatee claims: guarnatee associates engage forensic accountants to have an accurate evaluation of claims to be settled. Similarly, policyholders seek the help of a forensic accountant when they need to challenge the claim settlement as worked out by the guarnatee companies. A forensic accountant handles the claims relating to consequential loss policy, property loss due to discrete risks, fidelity guarnatee and other types of guarnatee claims.
8) Dispute settlement: company firms engage forensic accountants to handle ageement disputes, construction claims, stock liability claims, infringement of patent and trade marks cases, liability arising from breach of contracts and so on.
9) hymeneal dispute cases: Forensic accountants entertain cases pertaining to hymeneal disputes wherein their role is merely confined to tracing, locating and evaluating any form of asset involved.
Core Knowledge Of Forensic Accountants:
A forensic accountant is imaginable to be a scholar in accounting and financial systems. Yet, as associates continue to grow in size and complexity, uncovering fraud requires a forensic accountant to come to be proficient in an ever- addition amount of expert skills and competencies. Here are some of the broad areas of beneficial expertise for a forensic accountant:
" An in-depth knowledge of financial statements and the capability to critically analyse them. These skills help forensic accountants to uncover abnormal patterns in accounting information and recognise their source.
" A suitable understanding of fraud schemes, including but not miniature to asset misappropriations, money laundering, bribery, and corruption.
" The capability to comprehend the internal operate systems of corporations, and to set up a operate theory that assesses risks, achieves supervision objectives, informs employees of their operate responsibilities, and monitors the capability of the programme so that corrections and changes can be made.
" Proficiency in computer and knowledge of network systems. These skills help forensic accountants to show the way investigations in the area of e-banking and computerised accounting systems.
" Knowledge of psychology in order to understand the impulses behind criminal behaviour and to set up fraud arresting programmes that motivate and encourage employees.
" Interpersonal and communication skills, which aid in disseminating information about the company's ethical policies and help forensic accountants to show the way interviews and regain crucially needed information.
" suitable knowledge of company.s governance policies and the laws that regulate these policies.
" Command of criminal and civil law, as well as, of the legal theory and court procedures.
Personal Skills Required:
So what does it take to come to be a forensic accountant? In addition to the specialised knowledge about the techniques of looking out the frauds, one needs patience and an analytical mindset. One has to look beyond the numbers and grasp the substance of the situation. There is a need for the same basic accounting skills that it takes to come to be a good auditor plus the capability to pay concentration to the smallest detail, analyse data thoroughly, think creatively, possess coarse company sense, be proficient with a computer, and have excellent communication skills. A "sixth"sense that can be used to reconstruct details of past accounting transactions is also beneficial. A photographic memory helps when trying to visualise and reconstruct these past events. The forensic accountant also needs the capability to vocalize his composure when detailing these events on the inspect stand. Finally, a forensic accountant should be insensitive to personal attacks on his expert credibility. A fraud accountant (as forensic accountants are sometimes called) should also inspect and listen carefully. By this, you can improve your capability to detect lies whether they involve fraud or not. This is so because"not all liars are fraudsters, but all fraudsters are liars"(Wells).
According to a forensic accounting expert, "the traits of a forensic accountant could be compared to a well-baked pizza. The base of forensic accounting is accounting knowledge. Size and the extent of baking resolve the capability of the pizza. A middle layer is a dispersed knowledge of auditing, internal controls, risk evaluation and fraud detection. It is like the spread of the cheese in pizza. The toppings of this pizza area basic understanding of the legal environment. The legal environment is critical in order to sustain the litigations. The cherry on the toppings of the pizza is a strong set of communication skills, both written and oral. It is just the beautification part. excellent aggregate of the pizza base, cheese spread and good toppings makes the pizza yummy and the of company's the laws that Forensic Auditor perfects. It is a aggregate that will be in question for as long as human nature exists."
In addition to these personal characteristics, accountants must meet any further requirements to come to be flourishing forensic accountants, say a Certification, acknowledging his competence. One can learn forensic accounting by obtaining a diploma given by association of Certified Fraud Examiners (Acfe) in the Us. Indian part of Acfe offers the procedure based on the white-collared crimes prevalent in Us, based on their laws. However, there is no formal body that provides formal schooling of the frauds in India. Also the formal certificate, one can deepen one's knowledge and edge one's skills in forensic accounting by undergoing training under an experienced forensic accountant, participating in discrete international conferences, reading relevant journals, books and other literature on forensic accounting.
To combat the frauds effectively one needs the active sustain of government at every stage. There are three-four such agencies in India, which are dedicated to the mission of combating frauds. Serious Fraud Office looks into violations of earnings Tax, Fema, Rbi Act, etc.; Cbi (Economic Office Wing) deals with big financial frauds; Central Vigilance Commission deals with corruption. These are the major government agencies that combat frauds of dissimilar types. Unfortunately, there is no specialised schooling provided by any of the Universities in the country. Recently, Tcs has also come out with software to combat money laundering and Subex Systems have designed software to combat the telecom frauds. Thus, combating the frauds with software has started picking up in India, with few big associates like Acl and Idea, joining the race.
The Need For Niche Consulting:
The Cpa foresight Statement states: "The Cpas are trusted professionals who enable people and organisations to shape their future. Combining understanding with integrity, Cpas deliver value by: (a) communicating the total picture with clarity and objectivity, (b) translating corn plex information into critical knowledge, (c) anticipating and creating opportunities, and (d) developing pathways that transform foresight into reality1 It reflects the trend towards providing a broader range of guarnatee services. However, modern corporate accounting scandals and the resultant outcry for transparency and honesty in reporting have given rise to two disparate yet logical outcomes. First, forensic accounting skills have come to be crucial in untangling the complex accounting manoeuvres that have obfuscated financial statements. Second, collective question for change and subsequent regulatory operation has transformed corporate governance. Increasingly, company officers and directors are under ethical and legal scrutiny. Both trends have the coarse goal of responsibly addressing investors' concerns about the financial reporting system. Indeed, there is a hereafter in forensic accounting as a separate"niche" consulting area in India. The need to specialise, otherwise known as Niche Consulting, is imperative to practising accountants because the fast-paced developments in company thereby question specialised knowledge and skills. While a majority of Cas have excellent analytical skills, they need to write back that 'forensic' services wish 'specialised' training as well as real-life 'practical' corporate experience. There is a need for specialised information, not just audit and tax service. What clients seem to want are people with unique sets of skills and experiences. With the maturing of the audit business, and the rapid improvement of technology that makes existing services low cost and cheap, it appears that it is the right time now to regain those unique skills. To help practitioners move into 'niche' consulting, some expert organisations in the Us have ended that: "Future success for the profession depends, in part, on how the collective perceives the capability of Cpas. New efforts in consulting, specialisation and understanding global company practices and strategies are determined crucial. We go out into the niche market, examining our strengths first. We go where the operation is, only then we know we can adequately assistance our clients and make money doing it." One area where 'niche' consulting is becoming the global trend is in "Forensic Accounting and Auditing' But the major question facing the Indian accountancy profession is: Are we ready to plunge to where the challenging operation is?
Forensic Accounting In India:
It is in an infancy state in India.It is still an untrodden area in India.But due to ever addition cases of bank & cyber-frauds its growing point cannot be denied.
One immediate landmark creation is "Forensic explore Foundation".They contribute sustain for investigation of fraud.They publish one bi-monthly journal named as "White Crimes".It relates to forensic and economic crimes. Someone else international society named as Kpng has set up investigation detection centre in India.. Networks Limited, a Delhi based organization, working in the similar field, they are also trying to innovate ways and means to detect financial irregularities and crimes in India.Serious Investigation Fraud Offices(Sifo), has been established in India for the same reason, i.e. Detection and arresting of economic irregularities and crimes. The need for such bodies and the point of Forensic Accountants have been highlighted by L.N.Roy Committee.Lenin Parekh Committee has also expressed the view that one "fraud detection committee"need to be established. The main aim of such boards should be to forestall the interest of the stakeholders.
Conclusion:
Forensic accounting in India has come to limelight only recently due to rapid increase in white-collar crimes and the reliance that our law compulsion agencies do not have sufficient expertise or the time needed to uncover frauds. A large global accounting firm believes the market is sufficiently large to sustain an independent unit devoted strictly to 'forensic' accounting. All of the larger accounting firms, as well as, many medium-sized and boutique firms have recently created forensic accounting departments.
Forensic accounting, in fact, integrates accounting, auditing, and investigative skills to show the way an exam into a company's financial statements. Broad-based knowledge (within the themes listed above) is crucial to the success of entry-level forensic accountants. Because forensic accounting is relatively a new area of study, a series of working definitions and sharing of corporate experiences should be undertaken and encouraged to ensure a coarse understanding. Indeed, there is great hereafter in forensic accounting as a separate"niche" consulting.
While the forensic accounting and auditing institution had commenced in the Us as early as '1995, the seed of this specialisation has yet to take off in India. Forensic accountants are only dealing with financial implications of the cases entrusted to them and not challenging in auditing exercise. On inventory of global competition, the accounting profession must convince the marketplace that it has the "best-equipped" professionals to achieve such services.
Forensic accountants are also increasingly playing more 'proactive' risk reduction roles by designing and performing extended procedures as part of the statutory audit, acting as advisors to audit committees, and assisting in venture examiner research.
While majority of Cas have excellent analytical skills, they need to write back that 'forensic' services wish 'specialised' training as well as real-life 'practical' corporate experience.
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References: -
1)Journal Of Forensic Accounting: Editor-In Chief: Crumbley D. Larry, Publisher: Inc.Edwards. R.T.
2)Journal Of The Chartered Accountant 2007, Pages: 1000-1010.Dr. Madan Bhasin, The Author is Head, Accounting Department, Mazoon College, Muscat, Sultanate Of Oman.
3)Referential Notes Of Prof. Dutta Kr. Uttam, Reader Deaprtment Of Commerce, Reader, University Of Burdwan.
4)Website access: http://www.wikipedia.com, accessed on 4th, February, 2008.
Forensic Accounting - a New Paradigm For Niche Consulting
