Page 352 - Encyclopedia of Business and Finance

eobf_F 7/5/06 3:02 PM Page 329

Forensic Accounting

THE NEED FOR FORENSIC Other organizations and companies are also asking
ACCOUNTANTS AND FRAUD forensic accountants to search for wrongdoings. The Fed-
EXAMINERS eral Bureau of Investigation (FBI), the Internal Revenue
Between 2001 and 2005, a number of top business stories Service, and the U.S. Bureau of Alcohol, Tobacco and
disclosed financial statement fraud and its impact on the Firearms have forensic accountants who investigate situa-
accounting profession, businesses, consumers, and tions from money laundering and identity-theft-related
investors. In response to several large businesses seeking fraud to arson for profit and tax evasion. Law firms use
bankruptcy, the federal government enacted very specific forensic accountants to help divorcing clients uncover
accounting and business laws, including the Sarbanes- assets hidden by their spouses, and in the first decade of
Oxley Act of 2002. This act, among other regulations, the twenty-first century, forensic accountants have uncov-
states that chief executive officers and chief financial officers ered instances of companies misstating their financial
are directly responsible for the accuracy of financial state- statements to inflate company profits or minimize losses.
ments, with significant fines and extensive prison terms for Forensic accountants work in most major accounting
violators. The act also defines prohibited activities that are
firms and are needed for investigating mergers and acqui-
outside the normal scope of external auditors. Many busi- sitions; they are also employed in tax investigations, eco-
nesspeople found the act to be the most sweeping legisla- nomic crime investigations, all kinds of civil litigation
tion to affect the accounting profession since the Securities support, specialized audits, and even in terrorist investiga-
Act of 1933 and the Securities Exchange Act of 1934.
tions. Forensic accountants work throughout the business
Many professional organizations, including the world, in public accounting, corporations, and in all
American Institute of Certified Public Accountants and
branches of government (from the FBI and Central Intel-
the Association of Certified Fraud Examiners (ACFE),
ligence Agency to the offices of the local authorities).
emphasize the need for education in the prevention,
Forensic accounting firms are everywhere.
detection, and prosecution of accounting fraud. As a
result, the field of forensic accounting and fraud examina-
tion has emerged in the effort to combat financial abuse. A GROWING TREND IN HIGHER
EDUCATION
According to the ACFE Report to the Nation in 2005,
organizations lose an estimated $670 billion per year Since 2002 some colleges and universities have developed
(approximately 6 percent of all small businesses’ annual degree programs in forensic accounting and fraud exami-
gross revenue in 2004) to fraud and abuse. It is no won- nation, both at the undergraduate and graduate level.
der forensic accounting and fraud examination is one of Additionally, many academic institutions have developed
the fastest-growing sectors, not just within the accounting and are offering stand-alone courses in this field. Many
profession, but within all fields of employment. other academic and professional organizations are devel-
According to Accounting Today, nearly 40 percent of oping seminars and training modules to handle the
the top 100 accounting firms in the United States have demand for training in this area.
expanded, or were planning to expand, their forensic-
SEE ALSO Association of Certified Fraud Examiners;
related services. U.S. News & World Report (February 8,
Fraudulent Financial Reporting
2002) called forensic accounting one of the “20 hot job
tracks of the future” and in 2002 designated the forensic
accounting profession as one of the eight most secure BIBLIOGRAPHY
career tracks in America. SmartMoney Magazine also in Albrecht, W., Albrecht, S., and Albrecht, C. C. (2006). Fraud
2002 (Accounting Web US May 16, 2002) stated that this examination (2nd ed.). Mason, OH: Thomson South-
profession is one of the “ten hottest jobs” for the next Western.
Association of Certified Fraud Examiners (2004). Report to the
decade with a salary potential of over $100,000. In addi-
Nation. Available from http://www.acfe.com/fraud/report.asp.
tion, a national study conducted by Kessler International
Forensic Accounting. (2002). Forensic accounting demystified.
(August 2, 2001), a forensic accounting firm headquar-
http://www.forensicaccounting.com/home.html. Retrieved
tered in New York City, revealed that two-thirds of the
January 3, 2006.
companies that responded to a national study stated that
PPC’s guide to fraud detection (5th ed.). (2002). (Vols. 1–2). Fort
they have either used the services of a forensic accountant Worth, TX: Thomson-Practitioners.
already or have considered doing so. The Cincinnati Busi-
ness Courier in February 2003 stated that the major scan- Wells, J. T. (2005). Principles of fraud examination. Hoboken,
NJ: Wiley.
dals at the beginning of the twenty-first century had
prompted business owners to turn to forensic accountants
and fraud examiners for proactive fraud checkups. Richard O. Hanson

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 329