Forensic accounting is a new, specialized advisory activity that deals with investigation, proving and prevention of economic fraud and other illegal activities. Forensic accounting has its roots in investigating illicit activities (fraud) that has always been present in the history of business economics.
Forensic accounting deals with detection of three basic areas of frauds:
- alienation of property
- forgery of the financial statements
The most common activities that business forensics and forensic accountants perform are: detection of forgery of financial statements, detection of frauds or intention of fraud, detection of tax evasion, detection of fraudulent bankruptcy, appraisals of business transactions of assets, division of assets to co-owners, errors and negligence, forgery of documentation, detection of theft by employees, appraisals of the financial position of present and potential business partners, etc.
Forensics aids management to accomplish legal compliance, i.e. acting in line with legislative provisions. Forensics is also involved in various investigations after regular or outstanding audits detected indications of frauds in business-financial transactions.
After the investigations are performed, a report is compiled and presented to the client on the findings that can be used for internal needs as well as groundwork to the lawyer for further action.