Page 350 - Encyclopedia of Business and Finance

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Forensic Accounting

• Establishing a procedure requiring that critical FOREIGN EXCHANGE
employees, vendors, and contractors provide written
SEE Currency Exchange
statements that they are in compliance with the
requirements of the FCPA

SUBSEQUENT DEVELOPMENTS FORENSIC
On November 1, 1991, the Corporate Sentencing Guide- ACCOUNTING
lines Act was enacted. The guidelines appear to be a direct Forensic accounting, sometimes referred to as fraud exam-
descendent of the FCPA. The guidelines for organizations ination accounting, is an emerging area of specialization
“are designed so that the sanctions imposed upon organi- within the accounting discipline. Webster’s Dictionary
zations and their agents will, taken together, provide just defines forensic as “belonging to, used in, or suitable to
punishment, adequate deterrence, and incentives for courts of judicature or public discussion and debate.”
organizations to maintain internal mechanisms for pre- Forensic accounting can, therefore, be defined as account-
venting, detecting, and reporting criminal conduct” (U.S. ing that is used in a court of law, including, but not lim-
Sentencing Guidelines, chapter 8, intro. comm., appendix ited to, the application of accounting theory, principles,
p. Al). and calculations to actual or to hypothetical issues in legal
In most corporations, accountants and auditors have proceedings. The term is broad enough to include the
responsibility to prevent, detect, and report errors and many procedures that an accountant or auditor applies in
a fraud investigation.
irregularities. The Corporate Sentencing Guidelines are
legislation to deter white-collar crime. The guidelines’ Job titles commonly used in this field include foren-
major objective is requiring organizations to monitor sic accountant, investigative accountant, fraud examiner,
business activities to detect criminal conduct within their and fraud auditor. These terms are essentially interchange-
own ranks. able. Forensic accountants draw their expertise from many
areas, including accounting, auditing, cost accounting,
The guidelines allow organizations to use mitigating
taxation, and information technology. Forensic account-
factors to reduce their exposure to fines. One mitigating
ing is more than accounting—more than detective
factor is maintaining a corporate compliance program. work—it is a multifaceted activity that requires the use of
The corporate compliance program is to be the responsi-
knowledge from a number of disciplines.
bility of an officer or high-level employee. Elements of the
Detecting fraud or white-collar crime used to be
compliance program include:
thought of as part of the accounting function. Fraud was
• Established standards and procedures assumed to occur infrequently because of the presence of
internal and external auditors, who would likely identify
• Communication of the standards to employees
the presence of fraud in the financial statements. The
• Systems designed to detect criminal conduct problem of fraud, however, has become to be perceived as
serious, and at times, occurring more than infrequently.
• A reporting system in place whereby individuals
Such awareness is the motivation for this new specializa-
may report criminal conduct
tion in the accounting field.
• Disciplinary mechanisms that are consistently Forensic accounting has been subdivided into two
enforced
categories, (1) litigation support and (2) investigation and
dispute resolution. Some practitioners choose to specialize
FURTHER GUIDANCE in one of the categories. Other practitioners provide both
Information regarding the FCPA or the Foreign Corrupt types of services.
Practices Act Opinion Procedure may be obtained from
the U.S. Department of Justice, 950 Pennsylvania LITIGATION SUPPORT
Avenue NW, Washington, DC 20530-001, (202)514- Litigation support involves the presentation and interpre-
2000. tation of various issues related to assisting existing or
pending litigation. In this area of expertise, the forensic
SEE ALSO Fraudulent Financial Reporting; International
accountant may be asked to assign an estimated value for
Trade
damages sustained by parties involved in legal disputes
and to assist in resolving disputes, even before they reach
Charles H. Calhoun the courtroom.

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