Forensic Acccounting
Until recently, detecting fraud was thought to be a part of the responsibility of the accountant. Fraud was something the internal or external auditors were expected to guard against by their periodic audits. We now know that auditors can only check for compliance of a company’s books to the Generally Accepted Accounting Principles (GAAPs) and to company policy; therefore, a new category of accounting had to be established, one which revealed the fraud for companies with suspected fraudulent transactions. This new area of accounting is known as forensic accounting.
To fully understand the definition of forensic accounting, we can use parts of the definition of forensic medicine and accounting, both taken from Webster’s Dictionary, to produce a clear definition. Forensic medicine is a “science that deals with the relation and application of facts to legal problems.” Accounting is “the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the result.” So, the combination of these two definitions would yield forensic accounting as an accounting method that deals with the relation and application of system used to record and summarize business and financial transactions to a legal problem. Within this area of accounting, there are two general categories of accountants or areas of practice. They are the following: litigation support specialists and investigative or fraud accountants.
This profession has not been around for long. However, this line of work is nothing new, as there were people dealing with “employee” crime thousands of years ago. Back in the 3300 and 3500 BC, the world’s first accountants, or scribes, can be found in Mesopotamia and Egypt. These “accountants” recorded commercial transactions onto damp clay tablets or papyrus. Fast forward to the 19th century, Scotland introduces the first official chartered accounting profession. It started out as a profession where legal work accounted for a large portion of an accountant’s job. However, by the early 20th century, chartered accountants expanded their services to a much wider field and court appearances shrank relative to the size of their business. As one can see, forensic accounting is not a new and exciting field in accounting; rather it is a return to where accounting had all started.
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