Forensic accounting is a highly specialized field of accountancy in which specially trained CPAs and business accountants provide litigation support for a range of civil and criminal legal disputes. Like other forensic fields, forensic accountancy involves an intense investigation of expenditures, account histories and the value of assets related to the legal case at hand.
Most practicing forensic accountants are Certified Forensic Accountants, or CFAs.
Forensic means “suitable for use in a court of law”, and the purpose of forensic accounting is to provide litigation support in the form of an accurate assessment of a business’ or individual’s assets and/or financial behavior. This information is reviewed by judges, attorneys and, in some cases, juries, and it may have a large impact on the case’s outcome.
There are several different types of cases which usually require the litigation support of a CFA. They may be criminal cases involving fraud or embezzlement, or they may be civil cases involving disputes over spousal support, breach of contract or business valuation. Generally speaking, this type of accounting may be divided into the following three categories.
Forensic Accounting and Criminal Fraud
CFAs are often called upon to assist in cases involving criminal fraud, particularly in business settings. It’s the forensic accountant’s job to investigate the accounting systems, history and accounting information presented by the defendant leading up to the alleged fraud. In other words, the CFA determines if financial figures have been tampered with and to what degree.
Forensic litigation support is particularly important in cases of embezzlement, which may involve false accounts and hidden assets which require the expert eye of a CFA.
In some cases, businesses may privately hire a CFA to further investigate not only who has tampered with funds, but where those funds were used, for what purpose and how the fraud went undetected. When a business or individual is unsure of whether or not fraud has been committed, a forensic accountant may be hired and his or her findings may be used as evidence if a lawsuit is subsequently filed.
CFAs and Family Disputes
CFAs are commonly called upon to investigate cases involving marital and family disputes, particularly those pertaining to divorce cases. In divorce cases, CFAs are responsible for analyzing the lifestyle, expenditures and assets of parties involved; this information is used to determine alimony, child support and equitable distribution.
Business valuation is often an important part of litigation support in divorce cases. Courts require an accurate assessment of the value of a spouse’s business venture in order to determine how to divide assets. CFAs may also provide counsel for non-divorce family disputes, such as inheritance disputes.
Forensic Accountancy and Civil Disputes
Non family civil disputes which require the expertise of CFAs include cases involving personal injury, breach of contract and disagreement over company acquisitions. In cases involving personal injury or breach of contract, it’s the CFA’s job to calculate an individual’s economic loss inflicted by the offense or breach of contract. For example, if a plaintiff sued an insurance company for damages due to unpaid insurance claims, the CFA would be responsible for quantifying the damage in financial terms.