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In Brief
At one time, the practice of forensic accounting was not recognized as a separate practice area distinct from auditing. Over the decades, the auditing function separated itself from fraud detection. As occurred, forensic practice began to develop, and fraud investigation and litigation services began to be offered. As forensic practices followed their own separate path, the services provided changed into those of an investigative nature. Today, with the rash of cybercrimes being committed against every business connected to the Internet, the nature of forensic practice is poised to expand into new territory. This article reviews the history of forensic accounting, and makes predictions about what the future holds for this practice area.
Forensic accounting functions can be limited to financial investigations into a breach in a trusted relationship, or they can be expanded to include any malicious acts against a company's resources. Here, the latter, broader definition will be used. Basic forensic functions include identifying stolen assets, uncovering financial misrepresentations, and locating and tracing money trails. Forensic accountants use aggressive investigative approaches and expect their work to eventually be presented in a legal forum.
In the early 1900s, "forensic" accounting first developed to safeguard businesses expanding in North America, but there was no specific accounting practice explicitly dealing with forensic or fraud issues. The work of the "forensic" accountant- the word was not used at the time-was to count company assets and review company accounts for fraud. There was no auditing attestation function, and there were no serious professional accounting groups such as the American Institute of CPAs. Today's forensic accounting is very different from the search for fraud at the turn of the twentieth century. The field is still changing today, and it is worthwhile to speculate how much it will change in the future. This article reviews the contractions and expansions that have occurred in the field of forensic accounting.
At the Beginning
At the beginning of the 20th century, several writes in the United Kingdom expressed their views about the importance of the accountant's role in uncovering fraud, and these views continued to evolve in the United States. In 1903, a contributor to The Accountant wrote: "It should be the auditor's duty, not only by positive, but also by means...