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As the business world becomes more complex and diverse, certified public accountants (CPAs) should reexamine how they manage risk and expand their business practices. Recently, the areas of litigation support services, fraud detection, and participating as an expert witness, commonly called "forensic accounting," have received increased attention. Because of its increased demand, its diversity and financial rewards, forensic accounting practices should be developed further. The purposes of this paper are to: 1) delineate the scope and nature of forensic accounting; 2) explore opportunities and challenges of forensic practices; 3) describe the personality traits necessary to practice successfully in this arena; and 4) develop an overall strategy for practicing forensic accounting.
SCOPE AND NATURE OF FORENSIC ACCOUNTING
Webster's Dictionary defines "forensic" as "belonging to, used in, or suitable to courts of justice." Forensic accounting applies accounting, auditing and legal concepts, principles, theories, standards and techniques to facts or hypotheses under consideration in a legal dispute. Forensic accountants prepare, compile and investigate information to support these legal matters. rather than focus on general financial statement users.
Forensic accounting practices can be used in public and private sector accounting and auditing activities. Recent government laws and regulations (e.g., the Welfare-Pension Fund Act and the Employee Retirement Income Security Act) have spurred public sector forensic accounting activities. In the private sector, forensic accountants' activities include three major areas: 1) litigation support consulting, 2) expert witnessing and 3) auditing alleged frauds.
LITIGATION SUPPORT CONSULTING
Litigation consultants participate in legal actions where financial information requires critical analysis for possible wrongful actions. This process investigates the relevance, adequacy and accuracy of information pertinent to legal actions including procedures for evaluating and interpreting financial information likely to be presented in court.
Litigation support services include civil claims such as business valuations, divorce settlements, employee theft and accidents. They also include professional liability such as malpractice claims. insurance disputes, damage/loss estimates, construction delays, contract interpretations and litigation involving issues of generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS).
Attorneys and forensic accountants share similar, but not identical, work-product privileges and financial investigation techniques.(1) Although accountants should treat all information gathered through the financial examinations as confidential, the data should be made available to all parties involved in a civil dispute....