Forensic Accounting (DOC)

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					                               Journal of
                           Forensic Accounting

                                 D. Larry Crumbley
What is forensic accounting?
Advantages of obtaining a CPA

          Simply put, forensic accounting is accounting that is suitable for legal
          review, offering the highest level of assurance, and including the now
          generally accepted connotation of having been arrived at in a scientific
          fashion. That is, forensic accounting is sufficiently thorough and complete
so that an accountant, in his/her considered independent professional judgement, can
deliver a finding as to accounts, inventories, or the presentation thereof that is of such
quality that it would be sustainable in some adversarial legal proceeding, or within
some judicial or administrative review. Findings are based upon the scientific
detection and interpretation of the evidences of phenomena introduced into the books
and records of an accounting system (expansively defined) and the effects of such
phenomena upon the accounts, inventories, or the presentation thereof.
(Alternatively, if there is no impact on an accounting system, there is no accounting
evidence, nor is there any effect upon the accounts, inventories, or the presentation
thereof; and such situations are not within the realm of forensic accounting.) The
primary orientation of forensic accounting is explanatory analysis (cause & effect) of
phenomena - including the discovery of deception (if any), and its effects - introduced
into an accounting system domain. The primary methodology employed by forensic
accountants is objective verification.

Since all professional accountants operate within a commercial legal environment, all
professional accountants are, in a sense, forensic accountants. What distinguishes
forensic accounting in common parlance, however, are the engagements. That is,
when a professional accountant accepts an engagement where they anticipate that
their finding or analysis may be subject to adversarial or judicial scrutiny or
administrative review, the professional accountant seeks a level of evidentiary detail
and analytical precision which will be sustainable within the legal framework of such
scrutiny or review. This approach is based on no more than the realistic appreciation
that, while there is some evolutionary dialogue, in the end, the courts or appropriate
administrative bodies are the ultimate arbiters of what accounting facts are.

Forensic accounting is focused, therefore, upon both the evidence of economic
transactions and reporting as contained within an accounting system, and the legal
framework which allows such evidence to be suitable to the purpose(s) of establishing
accountability and/or valuation. Forensic accountants are typically CPA/CAs that
specialize in those types of engagements where there is a need for such evidence.
Engagements are wide-ranging, and include transaction reconstruction and
measurement; bankruptcy, matrimonial divorce, and probate asset identification and
valuation; falsifications and manipulations of accounts or inventories or in the
presentation thereof; and accountability within the statutory audit and other
environments; among many others. Increasingly, as various parties perceive the value
of such evidence, grounded as it is in "accounting facts," forensic accountants are
called upon to play important peremptive roles (as of right, without cause), offering
independent assurance in such diverse areas as audit committee advisory services,
merger and underwriting due diligence, investment analyst research, and enterprise
risk management. The validation and enhancement of the body of knowledge (the
models and methodologies) relating to the evidentiary value of accounting data,
within a strict legal framework, is the raison d'être of the Journal of Forensic

Forensic accountants detect and interpret the evidences of both normal
(nonfraudulent) and abnormal (fraudulent) phenomena introduced into the books and
records of an accounting system (expansively defined) and the resultant effect upon
the accounts, inventories, and the presentation thereof. It is imperative, therefore, that
forensic accountants first understand what is normal, since even extremely high value
abnormalities are introduced by such simple mechanisms as improper account
classification or the presentation policy of routine transactions. Therefore, just as
forensic dentists and forensic anthropologists are dentists or anthropologists first (that
is, they are foremost professionals in the underlying discipline and are specialists in
its forensic aspects), so too forensic accountants are accountants first. Students not
desirous of a professional accounting orientation might wish to pursue careers as
financial investigators or analysts; fields in which cross-fertilization of ideas and
engagement teaming naturally arise.

Students in the United States desiring a career as a professional accountant
specializing in forensic engagements might wish to consider first obtaining their CPA.
CPAs have a social obligation which transcends the client-accountant relationship.
The strictures of AICPA standards not withstanding, the specialization of forensic
accounting is rapidly evolving to demand a standard of professionalism that begins
with the social obligation of CPAs, but goes farther in demanding independent,
objective (bias-free) analysis and reporting of economic transactions.

In addition, certain SEC Rules, including some related to the Sarbanes-Oxley Act,
provide CPAs with a powerful tool which makes it unlawful for large portions of a
subject population to mislead "any independent public or certified public accountant"
in a variety of engagement situations. Many states have passed mirror legislation that
provides an equivalent tool to CPAs in a variety of non-public company engagements.

Moreover, CPAs are uniquely qualified to tackle fraudulent financial reporting by
executive management in public companies, the magnitude of which typically dwarfs
employee or external fraud.
Lastly, most states provide a licensing exception for CPA's who perform investigative
tasks commonly undertaken by forensic accountants. Without this exception,
performance of many of these investigative tasks would require a situationally-limited
exemption (e.g., in some states working as an employee and focused exclusively on
the affairs of the employer - such as an internal auditor), a Private Investigator's
license, or be prohibited altogether. Public-sector financial investigators are generally
excluded from licensing requirements.

The Journal of Forensic Accounting offers a special subscription rate for students.
Student subscriptions must be applied for in writing along with a photocopy of a
current student identification card from a recognized international institution of higher
education. Student subscriptions are available to a residential address only, and must
be paid by personal dollar check.

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