Forensic accounting is a term used to define the type of accounting that employs the use of auditing, accounting, and investigative skills to conduct an examination into the finances of an individual or businesses. The number play done by ways of forensic accounting provides an accounting analysis that is capable of being used in legal proceedings – if need be, as it is done with great precision and accuracy. The work requires trained professionals known as forensic accountants who excel in looking beyond the numbers and are capable of dealing with the other factors that may be affecting the business.
Forensic accounting plays a major role in helping companies maintain their data if needed or brought up in any legal matters. Forensic accounting has been used many times in fraud and embezzlement cases to explain or defend charges of financial misbehaving of records in courts.
Some of the major applications of forensic accounting include fraud investigations, negligence cases and insurance claims. An insurance claim is one of the most regular uses of forensic accounting. Insurance claims require determining the amount a client should claim from the insurer or the insurance company. To do this in a fault proof manner, a detailed review of the insurance policy is done. All clauses and terms etc. which could restrict the claim amount are analyzed thoroughly. This is followed by the company to quantify the loss or give it a financial number for the approximate claim amount.
Insurance claims might include misappropriation of assets, theft, forging etc. A forensic accountant will review the claimants cash records and details of purchases, the time period, the quality and will determine the value of the insured item. A proficient forensic accountant will not take a claim at face value. They will analyze every other possibility including any error in the data produced by the claimant.
Forensic accountants are also consulted when a disagreement arises between two parties on the amount owed by one party to another. The accountant analyzes all the financial data between the parties at concern. The forensic accountant then provides an expert valuation of the business and its finances with proof. These may include instances where the stakeholders of a company are at odds, when matrimonial disputes arise between the owners of the company,etc.
Forensic accountants also play the role of expert witness to the important decisions being taken in a company. The forensic accountants understand the key intricacies of the company and they are included in top board meetings to witness and contribute to the important decisions being taken. Forensic accountants have the ability to explain complex accounting terms to someone else who is not an accountant – this may include lawyers, stakeholders, jury members etc. A forensic accountant has accountancy, communication skills, and investigative skills up their sleeves.
Forensic accounting also addresses other key aspects such as financial statement misrepresentation, employee theft, identity theft, breach of contract, statement falsification, asset recovery, financial statement analysis for fraud detection and various other crucial matters pertaining to the well being of a company’s records.
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