Introduction:
Forensic accounting is also known as financial forensic accounting, which is characterized as the accounting component that recounts any contribution resulting from an expected or actual litigation phase. The term forensic thus means “correct for use in the court of law.” Forensic accountants always have Mukt Shabd at any potential financial fraud or related case trial to provide their expert evidence. According to the Association of International Certified Professional Accountants (CPA), forensic accounting services typically include the application of CPA’s professional expertise and investigative skills in gathering, reviewing, and assessing facts and presenting and transmitting conclusions in the courtroom, boardroom or other legal administrative venues.
Forensic accounting, in other words, may also be described as accounting used in a court of law, including, but not limited to, the application of accounting theory, concepts, and estimates to real or hypothetical issues in legal proceedings. This is synonymous with a forensic accountant (FA), investigative accountant, fraud investigator, and fraud auditor.
The FAs are experts in the fields of accounting, auditing, cost accounting, taxes, and IT. This is a multi-faceted task involving the use of skills from several disciplines. Financial fraud is long-lasting and endless in nature, starting with household crimes and white-collar crime. Worldwide it prevails in all ages. There is no distinction between developed countries, developing countries, or underdeveloped countries for accounting scandals and fraud, as it prevails everywhere. Neither organization or country is resistant to fraud, and it can be found in all human activities. There have been several financial frauds and scandals over the last few years. Yet few come to the limelight while some continue with a strong flow because it is not observed. (Funshio & Ibrahim, 2019) Claims have been made that fraud is the number one enemy of business.
Forensic Accounting
Forensic accounting is in fact support for litigation involving the application of accounting principles and theories to the evidence or assumptions at issue in a legal dispute, which consists of two primary functions:
- Litigation consulting services that understand the forensic professional’s position as an expert or consultant
- Investigative services which exploit the skills of the forensic professional and may or may not lead to testimony in the courtroom
Forensic Accountants combine their accounting expertise with forensic skills, measure economic losses, company or asset valuations, and provide varying levels of support, from technical analysis and data processing to a wider approach that may involve the creation of legal tactics, claims, and evidence in civil and criminal courts.
Forensic Accountants can be hired by the forensic accounting departments of public accounting companies, risk management companies and forensic accounting services, or by lawyers, law enforcement authorities, insurance firms, governmental entities, or financial institutions. Due to the growing knowledge of the community and increasing fear of fraudulent activity, demand for Forensic Accountants is rising rapidly.
Fraud Examination
Fraud Examination is the discipline of solving allegations of fraud arising from tips, complaints, or accounting clues. It includes collecting photographic information, questioning witnesses and possible suspects, writing investigation reports, testifying to conclusions, and helping in identifying and preventing fraud generally.
A fraud examiner must know how to get proof (documents or statements by witness) correctly and lawfully, as well as how to write a straightforward, reliable, and impartial report that represents the results of the fraud test. He is a gatherer of evidence, but not the sole judge of it; his conclusions are required to be testified by the judiciary.
The primary responsibility for fraud prevention resides with the management or other responsible authority. Fraud examiners should actively pursue and recommend appropriate fraud prevention policies and procedures. Once evidence of fraud is presented, however, he is expected to perform sufficient procedures, as set out in the Fraud Manual, to solve the problem.
Relationship between Forensic Accounting and Fraud Examination
Forensic accounting and checking for fraud are different but related. In preparation for litigation, forensic accounting work is performed by accountants which can include fraud analysis, appraisal, bankruptcy, and a variety of other professional services. Fraud assessments may be carried out by either accountants or non-accountants and apply only to anti-fraud matters and also aid with attempts to detect and discourage fraud.
Fraud tests may typically fall under the category of forensic accounting since the majority of fraud assessments, inquiries and reports are performed “with an eye to litigation.” In other words, fraud examiners are trained to perform their analysis on the premise that the case may end in litigation.
Forensic Accounting for Litigation Support
Forensic accounting is used in lawsuits where the costs are to be quantified. Parties interested in legal disputes use the quantifications to help resolve conflicts through agreements or tribunal rulings. This can, for example, arise because of disputes over compensation and benefits. When the conflict escalates to a court ruling, the forensic accountant can be used as an expert witness.
Forensic Accounting for Criminal Investigation
Forensic accounting is often used to figure out whether a crime has occurred and to determine the likelihood of criminal intent. These offenses may include bribery of staff, stock fraud, falsification of details on financial statements, identity theft, or fraud in insurance. For complicated and high-profile financial crimes forensic accounting is also brought to bear. The reason we understand the essence of Bernie Madoff’s Ponzi scheme today is that the scheme was dissected by forensic accountants and made it clear for the court case.
Forensic accountants can also assist in searching for secret assets in divorce proceedings or provide their services for other civil matters such as contract violations, coercion, conflicts over company acquisitions, warranty violations, or disputes over business valuation. Forensic accounting duties can include examining claims for building, expropriations, claims for product liability, or infringements of trademarks or patents. However, if not all of that was sufficient, forensic accounting may also be used to assess the economic implications of a non-disclosure or non-competitive violation of the agreement.
Forensic Accounting in the Insurance Industry
The insurance industry regularly makes use of forensic accounting. A forensic accountant may be required in this capacity to measure the economic harm arising from a car crash, a case of medical malpractice or some other allegation. One of the drawbacks of taking an insurance claims forensic accounting approach, as opposed to an adjuster approach, is that forensic accounting is mainly concerned with historical details and can lack important current information that shifts the assumptions about the claim.
Forensic Accounting in India
The Reserve Bank of India ( RBI) has made forensic accounting audit mandatory for all banks within the country due to the nature and forms of fraud in India. The creation of the Indian Serious Fraud Investigation Office (SFIO) has been a turning point for the country’s forensic accountants. The indications of the rising demand for the sector are:
- The widening list of criminal offenses online
- Dismantling of regulators to identify and monitor cyber-security abuse
- The long chain of cooperative banks is breaking through.
Laws applicable in India
- Fraudulent exists in Articles 206, 207, 208, 242, 246, 247, 252, 253, 261, 262, 263 and 421 to 424. Sections 24 and 23 describe the words ‘dishonestly’ and ‘false gain and unjust loss.’ ‘Fair gain’ is gain by illegal means of property that are not legitimately belonging to the individual receiving it. ‘False loss’ is the loss of property by illegal means to which the person who loses it is legally entitled. One who does something to cause one person’s wrongful benefit or another person’s wrongful loss is said to do the act ‘unjust’
- The Companies Act, 2013 provided the punishment for fraud in section 447, approximately 20 sections of the Act, e.g. 7(5), 7(6), 8(11), 34, 36, 38(1), 46(5), 56(7), 66(10), 75, 140(5), 206(4), 213, 229, 251(1), 266(1), 339(3), 448 etc., for directors, key managers, auditors and company officers.
- Under section 140, the auditors and their clients are collectively responsible for any wrongdoing in the account books.
- According to Section 143 of the Companies Act, 2013, it was the responsibility of the auditors to disclose fraud to the Central Government.
- The IT Act, 2008 acknowledges fraud-related offenses such as manipulation of electronic source records, hacking of computer networks, producing, publishing, or otherwise making digital signatures accessible for any fraudulent purpose. The Act also provides legitimacy for electronic records and approvals and recognizes the evidentiary value of electronic records, emails, and electronic approvals, and allows them to be used instead of paper documents subject to compliance with the guidelines set out in the Act.
Applicable rules- outside India
Fraud act, 2006 – UK
Each offense in the 2006 Fraud Act is an offense of conduct, complete on the acts of the accused, regardless of any result caused. And there’s no need to justify some kind of outcome, it’s enough that the individual intends to cause loss or make a benefit.
Bribery Act, 2010 – U.K.
It introduces, in particular, a new strict liability offense for companies and partnerships which fail to prevent bribery. The implementation of this new corporate criminal offense imposes a duty of evidence on companies to show that they have sufficient processes in place to deter wrongdoing. Even the Bribery Act provides for stringent punishments for active and passive bribery by both individuals and companies. In Section 1 the crime of corruption is described as occurring when a person offers, gives, or agrees to give another person a “financial or other benefits” in exchange for performing a “relevant function or activity” “inappropriately.”
Law on foreign corruption, 1977 – United States of America
The 1977 Foreign Corrupt Practices Act (FCPA) is a federal statute of the United States, known specifically for two of its key provisions, one that addresses financial disclosure requirements under the 1934 Securities Exchange Act and one that addresses foreign official bribery.
The OECD Conference on Anti-Bribery
The OECD Anti-Bribery Convention (officially the Convention to Counter the Bribery of Foreign Public Officials in International Business Transactions) is an OECD treaty intended to eradicate corruption in developed countries by promoting restrictions against bribery in foreign business transactions conducted by companies operating in the member states of the Treaty. It aims to create a genuinely level playing field in today’s global business environment. Countries that have signed the convention are expected to enact legislation criminalizing the act of bribing a foreign official.
Judicial View
There are general rules and standards for expert opinion evidence in that a forensic accountant must consider before and during testimony in court the relevance, reliability, admissibility, weight, and credibility of expert opinion evidence. Furthermore, qualified and ethical expert witnesses have a better chance of providing impartial and objective proof of opinion. Thirdly, forensic accountants assist judicial officers, legal counsel making from consultant, consulting and supporting evidence through the various forensic accountant services. Of this reason, the testimony of forensic accountants makes the judiciary successful.
It is solemnly and deeply recommended that countries prone to criminal and fraud, should use forensic accountants set up in their decrees, laws, and regulations. Second, forensic accountants should be well qualified in the laws and regulations of law, and go to trial to observe the process of litigation. Third, forensic accountants should have a strong sense of professionalism and ethics to produce credible reports that can stand the test of the judiciary to have a sustained reputation and successful career. Fourthly, transition is irreversible to the judiciary and constitutional changes are made to resolve the shift in the situation.
Removal of immunity should be sought as partial immunity has failed to solve James’ issues, said 2016. The shift happened in Jones v. Kaney to the forensic accountants. Total and appropriate monitoring mechanisms should also be placed in place to identify corrupt judicial officers. Trial panel against erring judicial officers should be supplemented by the fact that the Judicial Council should have representatives as watchdogs and whistles blowing at trial courts on rotational bases.
Conclusion
Every money is totally safe. Each amount of money has its legitimate use, and thus, misuse of any amount will have some negative consequences, which is why it is a very important forensic to help keep financial crime checks. This research outlined Forensic accounting, evolution, fraud and its emanation, forensic service providers, and top firms with separate Forensic Department. This study will be discussed bearing in mind the layman who is not aware of the Forensic Accounting and FAs definition.
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