Forensic Accounting can be traced as far back as 1824 to an accountant’s advertising circular in Glasgow, Scotland. Arbiters, courts and counsels created the demand for these special accountants. By the early 1900s, some articles instructing accountants as to the proper manner in which to give expert testimony began to appear in the United States and England.
Regulatory and criminal statutes increased the need for the forensic accounting discipline. Initially called investigative accounting, many of the forensic techniques, such as the net worth method, were developed by IRS agents to detect tax evaders. Infamous mobster, Al Capone was caught when Special Agents of the IRS stepped in and charged him with tax evasion. Accountants caused the crime czar’s career to come to an end.
As more regulatory, tax and criminal statutes became law, forensic accounting continued to grow especially over the past three decades. Francis C. Dykeman wrote Forensic Accounting: The Accountant As An Expert Witness in 1982. In 1986, the AICPA issued Practice Aid 7, outlining six areas of litigation services: damages, antitrust analyses, accounting, valuation, general consulting and analyses. The American College of Forensic Examiners International was founded in 1992 by Robert L. O’Block, Ph.D. It publishes The Forensic Examiner®, a peer-reviewed publication.
The American Board of Forensic Accountants was founded in March of 1997 and in 2001, I was fortunate enough to be the first accountant in the United States to pass the Certified Forensic Accounting Examination. In 2008, I was one of the first accountants in the United States to earn the Certified in Financial Forensic Designation awarded by the American Institute of Certified Public Accountants.
A forensic accountant performs an orderly analysis, investigation, inquiry, test, inspection or examination to obtain evidence from which to provide an expert opinion. Since forensic accounting often involves legal issues, an accountant practicing in the forensic area needs to have an understanding of and experience in the legal process. The evidence the forensic accountant derives from an investigation may require him or her to help attorneys and give testimony as an expert witness.
The forensic accountant also needs to be extremely knowledgeable and experienced in areas such as corporate financial planning and management techniques. Advanced computer skills are required, including the ability to understand and apply various information technology and accounting systems. Finally, a forensic accountant needs to have strong communication skills including the ability to interview people and effectively elicit information from people who may not be willing to give truthful answers. This skill is often underestimated, even though it is crucial to being a successful forensic accountant.
Forensic accounting services include investigative and evaluation services of:
- Insurance Claim Consulting Including:
- Business Interruption Losses
- Loss of Profits
- Inventory Losses
- Expert Witness Testimony
- Extra Expenses
- Rental Loss
- Construction Claim Consulting Including:
- Extra Work
- Construction Delays
- Escalation
- Acceleration
- Work Disruption
- Contract Termination
- Loss of Earnings Claim Consulting Including:
- Wrongful Termination
- Discrimination
- Personal Injury
- Disability
- Marital Dissolution
- Partnership Dissolution
- Internal Revenue Service Audits
- Gift, Estate and Inheritance Tax Valuation
- Real Estate Tax Assessment Appeals and Valuations
- Mercantile and Business Privilege Tax Appeals
- Professional Liability/Malpractice
- Fraud Investigation
