Forensic Accounting in Practice - Research Paper Example

? Forensic Accounting in Practice Introduction Forensic accounting can be generally described as a wide range of investigative works that are performed by various forensic accountants. The roles of forensic accounting basically involve conducting the analysis of the financial stability of an organization and dealing with the fraudulent activities that occur within an organization. The notion of forensic accounting not only refers to the analysis of the financial affairs, but also acts as active evidence in addressing along with mitigating certain fraudulent activity. In this context, the analysis of the financial affairs denotes certain practical measures that are required to be adopted by the concerned accountants regarding the search of evidences for the occurrence of fraudulent activity (Association of Chartered Certified Accountants, 2008). Thus, this research paper will provide a brief understanding about the notion of forensic accounting in practice. Question 1 An ordinary accountant cannot always be an effective forensic accountant. In order to become an effective forensic accountant, he/she must possess certain skills and ought to evaluate those skills in profession. The most important five skills that a forensic accountant needs to possess have been described hereunder. Advanced education in appropriate discipline It is regarded as one of the most important skills to be acquired by a forensic accountant. The accountant needs to possess advanced education in appropriate discipline, which will be helpful in conducting his daily activities efficiently. The accountant must have a detailed knowledge about the aspect of auditing, analyzing the risks, identifying any sort of fraudulent activity and finding effective measures to solve those risks as well as fraudulent activities (Nunn et al, 2006). Diversified accounting and auditing experience Another imperative skill which needs to possess by a forensic accountant is the experience in the field of accounting along with auditing. In this similar context, the experienced accountants possessing effective skills and knowledge in taxation, business operation, communication and interpersonal relationships are considered to be greater assets for an organization. The reason is that those experienced accountants can assist the organizations in conducting various tasks with superior accuracy and effectiveness (Nunn et al., 2006). Communication skill The oral and written communication skill is required to be possessed by a forensic accountant. This skill is useful in performing various operational functions of a business in an effective manner. The forensic accountants need to communicate with various departments in order to analyze the financial affairs and also for detecting any fraudulent activity. Moreover, a forensic accountant requires communicating with the legal authorities for the justification of the fraud being performed within an organization (Nunn et al., 2006). Core skill Core skill refers to the fundamental characteristics of an accountant. This skill is often viewed to be the combined knowledge of the taxes and the business laws along with better education and experience. Thus, the accountants can utilize their core skills in determining tax systems of the organizations along with working in accordance with business laws and ethics (Davis et al., n.d). Enhanced skill The idea of enhanced skill refers to additional specializations that are acquired by the forensic accountants. The other knowledge which possessed by the accountants such as acting as the evidence of any fraudulent activity in the court room assists the organizations in running their business smoothly (Davis et al., n.d). Question 2 It has already been observed that the major responsibilities of forensic accountants are to analyze the financial affairs along with the detection of the fraudulent activities within an organization. However, the role of the accountants does not end at this point. They needs to act as an evidence of the fraud in the court room (Krstic, 2009). The forensic accountants need to utilize their skills in major two areas i.e. lawsuit investigation and resolving any dispute within a courtroom environment. In this context, the lawsuit investigation refers to the representation of the issues related to legal assistance. In general, it can be termed as the identification of the fraudulent activities being conducted within the organizations. The other area is resolving any sort of emerged dispute, wherein the forensic accountants act as the witness before the court room. In relation to the case of legal assistance, initially the accountants try to resolve the problems outside the court room, but if it does not work, then the accountant endeavors to take the case in the court (The Chartered Accountant, 2007). Question 3 Usually, business organizations engage forensic accountants to perform wide variety of activities. These activities range from investigation of the financial matters to acting as an evidence, if any fraudulent activity is identified to be performed. The legal responsibilities of forensic accountants while providing service to a business can be analyzed in two specific areas. One of the areas is the resolving of legal conflicts that occur amid the shareholders or the partners. At this moment, the accountants need to analyze the financial transactions and resolve the disputes of the shareholders of the organizations. The other decisive legal responsibility of the accountants is to act as a witness in case of any kind of fraudulent activity is detected to be performed within an organization. Initially, the accountants identify whether the fraudulent activity has been conducted by the business owners or the employees and thus adopt necessary measures accordingly. The accountants determine the nature of the fraud and take legal steps in dealing with the issue. Depending on the nature of the fraud, the forensic accountants act as the evidence to the matter in the court room. Initially, the forensic accountants try to resolve the dispute outside the court, so that the internal matters relating to the organization do not appear in the business or within the general public. It can be affirmed that the existence of fraud within an organization hampers the profitability along with the productivity of business. In this particular scenario, the forensic accountants act as the auditors of the organizations who try to resolve the conflicts prevailing within the organizations (The Chartered Accountant, 2007). Question 4 The two of the cases wherein the forensic accountants have provided vital evidences have been discussed hereunder. Unmasking the Fraud of Ponzi Schemes: Forensic Accounting and the Law Unite This case relates to the introduction of a Ponzi scheme which is defined by The US Securities and Exchange Commission (SEC). This particular scheme is duly considered to be a fraudulent scheme as it involves in making payment of returns to the existing investors from the funds that contribute by the newer investors. In the US market scenario, the cases of Ponzi scheme have rapidly increased and in order to abolish this scheme, the SEC enforced certain lawful regulations against the scheme in the year 2009. In between the years 2008-2009, the Federal Bureau of Investigation (FBI) had accessed over 100 of enquiries and hired a number of forensic accountants, who could carry investigative works for Ponzi scheme (National Clearinghouse for Science, Technology, 2010). In this case, the forensic accountants had played the role of fighting tool against such fraudulent scheme. It can be viewed that the accountants were allotted with the task of identifying various techniques that adopted by the perpetrators in performing such fraud. After the occurrence of this case, several federal agencies of the US namely the FBI, SEC and the Central Intelligence Agency (CIA) had hired several forensic accountants for investigating the increasing fraudulent Ponzi scheme in the market (National Clearinghouse for Science, Technology, 2010). Legal Dispute between Thomas Burns and Lou Erickson Thomas Burns was the owner of a restaurant franchisee in the Upper-Midwest and Canada. He was an aggressive businessman and owned a lot of money. But at a certain period, he was facing serious problems relating to cash flow due to his extraordinary lifestyle and undergoing a few of unsuccessful restaurant projects. On the other hand, Lou Erickson was an employee at Fortune 500 corporations. In the year 1995, he decided to spent money in the business of Burns along with other seven partners. Burns agreed to the proposal and opened two of the restaurants. But those restaurants were unsuccessful in making profits and to recover the loss, Burns made call to the other partners including Lou for making more investments. In lieu of this, it can be viewed that they were not provided with the regular financial updates of the business and thus insisting them to make more investments. By looking into this condition, Lou filed a civil lawsuit of fraud against Burns in the court (Buckhoff & Taylor, n.d). Bill Benson was the forensic accountant in this case who had met with all the partners for examining the fraud in the organization. He had effectively resolved the problem with the provision of litigation support. The accountant in this case had arranged for making settlements out of the court, but the partners had opposed and decided to resolve the matter in the court. In this way, the accountant had tried to fulfill his responsibility of resolving dispute between Burns and Lou along with other seven partners (Buckhoff & Taylor, n.d). Conclusion The aforesaid study reveals the role along with the responsibilities of forensic accountants in business organizations. From the study, it can be apparently observed that their major role is to analyze the financial affairs of the organizations and take legal steps in case of any kind of fraudulent activity is performed within an organization. The involvement of forensic accountants in two of the aforesaid fraud cases reveals the responsibility of the accountants in a clear manner. References Association of Chartered Certified Accountants. (2008). Forensic auditing. Retrieved from http://www2.accaglobal.com/documents/forensic_auditing.pdf Buckhoff, T. A., & Taylor, M. H. (n.d). A case study of the role of the forensic accountant in a legal dispute. Retrieved from http://www.forensicsolutions.org/publications/EXPERT%20WITNESS%20ARTICLE%20JOFA%20Submission%20Revision.pdf Davis, C., Farrell, R., & Ogilby, S. (n.d). Characteristics and skills of the forensic accountant. Retrieved from http://www.aicpa.org/InterestAreas/ForensicAndValuation/Resources/PractAidsGuidance/DownloadableDocuments/ForensicAccountingResearchWhitePaper.pdf National Clearinghouse for Science, Technology. (2010). Unmasking the fraud of ponzi schemes: forensic accounting and the law unite. Retrieved from http://www.ncstl.org/evident/July2010-Pless Nunn, L., McGuire, B. L., Whitcomb, C., & Jost, E. (2006). Forensic accountants: financial investigators. Journal of business & economics research, 4 (2), 1-6. Krstic, J. (2009). The role of forensic accountants in detecting frauds in financial statements. Economics and Organization, 6 (3), 295-302. The Chartered Accountant. (2007). Preventing financial fraud through ‘forensic accounting’. Retrieved from http://www.icai.org/resource_file/96481575-1580.pdf Read More