What Is Forensic Accounting?
Forensic accounting utilizes accounting, auditing, and investigative skills to conduct an examination into the finances of an individual or business. Forensic accounting provides an accounting analysis suitable to be used in legal proceedings. Forensic accountants are trained to look beyond the numbers and deal with the business reality of a situation. Forensic accounting is frequently used in fraud and embezzlement cases to explain the nature of a financial crime in court.
Forensic Accounting for Criminal Investigation
Forensic accounting is also used to discover whether a crime occurred and assess the likelihood of criminal intent. Forensic accountants may also assist in searching for hidden assets in divorce cases or provide their services for other civil matters such as breach of contracts, tort, disagreements relating to company acquisitions, breaches of warranty, or business valuation disputes.
Forensic accounting assignments can include investigating construction claims, expropriations, product liability claims, or trademark or patent infringements. And, if all that wasn't enough, forensic accounting may also be used to determine the economic results of the breach of a nondisclosure or non-compete agreement.
Forensic Accounting for Litigation Support
Forensic accounting is utilized in litigation when quantification of damages is needed. Parties involved in legal disputes use the quantifications to assist in resolving disputes via settlements or court decisions. For example, this may arise due to compensation and benefit disputes. The forensic accountant may be utilized as an expert witness if the dispute escalates to a court decision.
Forensic Accounting in the Insurance Industry
Forensic accounting is routinely used by the insurance industry. In this capacity, a forensic accountant may be asked to quantify the economic damages arising from a vehicle accident, a case of medical malpractice, or some other claim. One of the concerns about taking a forensic accounting approach to insurance claims as opposed to an adjuster approach is that forensic accounting is mainly concerned with historical data and may miss relevant current information that changes the assumptions around the claim.
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Forensic Accounting Definition (investopedia.com)
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