FORENSIC ACCOUNTING

CONTENTS
• Introduction • Compliance with laws and regulations
• Definitions • Industry applications
• Growing threat of financial fraud • High Profile forensic cases
• Statistics on Global financial Losses • Benefits of forensic accounting
• Types of fraudulent schemes • Challenges faces
• Role of a forensic accountant • Certifications and trainings
• Forensic Accounting process • Importance of CFE

• Tools and Techniques used • Future trends

• Detecting and investigating financial • Integration of AI and block chain
misconduct
• Reference
• Utilization of data analytic software
• Core Principles
• Legal environment
 INTRODUCTION
• Forensic accounting is used by parties involved in legal disputes to resolve disputes before they escalate.

• Aim of the forensic accounting profession is to support people, organizations and governments throughout one of
the most challenging times (Howieson, 2018).

• Forensic accountants practitioners can work in different types of organizations including, insurance companies,
public institutes, police forces, banks and government agencies (Tiwari and Debnath, 2017; Yogi Prabowo, 2013).
 DEFINITIONS
• Forensic accounting concerns an issue that co-joins accounting and law.... It can be argued that forensic
accounting informs economic disputes, while fraud investigation, more narrowly concerns fraud and direct
allegations of financial misinterpretation (Stone & Miller, 2013).

• Forensic accounting is the application of investigative and analytical skills for the purpose of resolving issues in a
manner that meets the standards required by court of law (Hopwood, Leiner & Young, 2008)

• Forensic accounting is a multidisciplinary field that encompasses both a profession and industry, where civil or
criminal economic and financial claims, whether business or personal are contested within established political
structures, recognized and accepted social parameters and well-defined legal jurisdictions, and informed by
theories, methods and procedures from the fields of law, auditing, accounting, finance, economics and phycology,
sociology and criminology. (Huber & DiGabriele 2014)
 DEFINITIONS CONT.…

• Forensic accounting is the term used to describe the type of engagement. It is the whole process of carrying out a
forensic investigation, including preparing an expert’s report or witness statement, and potentially acting as an
expert witness in legal proceedings. Forensic investigation is a part of a forensic accounting engagement. Forensic
investigation is the process of gathering evidence so that the expert’s report or witness statement can be prepared. It
includes forensic auditing, but incorporates a much broader range of investigative techniques, such as interviewing
witnesses and suspects, imaging or recovering computer files including emails, physical searches of premises etc.
( ACCA, 2023)

• Forensic accounting is the practice of utilizing accounting auditing and investigative skill to assist in legal matter
and the application of specialized body of knowledge to the evidence of economic transaction and reporting suitable
is the purpose of establishing accountability or valuation of administrative proceeding (Owojori & Asalow, 2009).
 GROWING THREAT OF FINANCIAL FRAUD
• Need for forensic accountants was heightened due to the failure of the audit system in the organization, as
both internal and external audits failed to identify certain managerial errors.

• Economic pressure and increasing number of companies facing bankruptcy have led to a rise in forensic
accounting.

• Primarily driven by internal audit committees' inability to uncover hidden corporate fraud, the rotation of
statutory auditors, the lack of scrutiny of auditors' certificates, and the inability of internal auditors to initiate
proper action in time.

• Karpoff et al. (2008a) find that firms lose approximately 29% of their equity value when financial
misconduct is revealed.

• Kedia & Philippon (2009) show that misconduct distorts the allocation of economic resources in the
economy, as firms hire and invest excessively during periods of financial misconduct.
GROWING THREAT OF FINANCIAL FRAUD C O N T.

Snapshot taken from: ACFE 2022 – Occupational Fraud report

GROWING THREAT OF FINANCIAL FRAUD C O N T.

Snapshot taken from: ACFE 2022 – Occupational Fraud report

 FRAUDULENT SCHEMES

Embezzlement Money Laundering Financial Statement Fraud

 White collar crime whereby assets  Process of concealing the origins  Intentional misrepresentation of
are intentionally misappropriated of illegally obtained money, company’s financial health
 Misuse of company funds, typically by passing it through a through manipulation of FS
diversion of assets complex sequence of banking  Inflation of revenue,

Unexplained financial discrepancies transfers Understatements of expenses

 Integration, Layering and  Drastic changes in financial
placement performance
 Unusual or large cash transactions
 ROLE OF FORENSIC ACCOUNTANT

• A forensic accountant analyzes, interprets, summarizes, and presents complex financial and business information
in a clear and supported manner.

• Wallace (2001) listed the minimum requirement a forensic accountant must process to include:
 Possesses the ability to efficiently review a vast amount of documentation, including accounting records, management
information systems, memos, and financial data.
 Sound understanding of peculiarity of various business methods.
 Urgency and commitment to prompt response are crucial in addressing slow civil litigation, which may appear slow to the
onlooker or dispute participants.
 Ability to effectively communicate complex theoretical ideas to the public, using facts and figures when necessary without
appearing superior.
 Maintain objectivity and professionalism in the partisan court case process.
 ROLE OF FORENSIC ACCOUNTANT C O N T.

• Owojori & Asalow (2009) listed down the roles of the forensic accountants:
 provides preliminary advice,
 identifies key documents for evidence
 prepares a balanced report on evidence, reviews expert accounting reports
 briefs legal counsels on financial and accounting aspects of the case
 introduce environmental accounting measures to highlight environmental damage and potential recovery through continuous
environmental management.
 FORENSIC ACCOUNTING PROCESS

• According to Forensic Accounting Academy

 TOOLS & TECHNIQUES
• Ibrahim mert (2022) used following techniques in his research.

1. Mapping investigation
2. Gathering of evidence
3. Report
4. Testifying
a. Investigative techniques in forensic accounting
b. Reviewing and background checks of the document.
c. Reviewing and background checks of the document.
d. Interviews
e. Information to be from trustworthy sources
f. Evidence analysis
g. Surveillance
h. Using undercover techniques for gathering information
 FORENSIC ANALYTIC SOFTWARE

Shamsi S. Bawaneh (2011) - Computer-based data analysis tools can prove to be

invaluable in searching for possible fraud.
 CORE PRINCIPLES
Issue Financial Audit Forensic Audit
Frequency Recurring Incidental & Non-Recurring

Objective Compliance , Advisory & Control Liability Investigation & Culpability

Scope Generic & Broad, Random Specific data set , exact , precise
Sampling , Fair view

Relationship with Client Non-adversarial Adversarial

Methodology & process Accounting Standards AS,IT Standards,Industry specific

standards
Presumption Professional Skepticism Evidence based

Sandeep Arora (2018)

 LEGAL ENVIRONMENT
• Litigation support services are defined by Oyedele et al. (2014) as the application of accounting, auditing, and
communication expertise to assist legal proceedings. In certain situations, a forensic accountant may be hired to act as
an expert witness, master, or special master.
• Expert witness testimony, financial report and exhibit production, and financial data analysis are all included in the
scope of litigation support.Litigation support is also described as "the provision of assistance to attorneys in any phase
of a legal matter, including pretrial, trial, and post-trial activities" by the American Bar Association (ABA) (2021).
• James Ibori’s case-The forensic accounting evidence was instrumental in securing Ibori’s conviction in both Nigeria
and UK. (EFCC, 2014)
• Darius Ishaku’s case- Forensic accountant served as expert witnesses in the federal high court where they presented
their findings and opinions on Ishaku’s financial activities and transactions (EFCC, 2019).
• Diezani Alison-Madueke’s case -Forensic accountants served as expert witnesses in both Nigeria and UK courts,
where they explained their findings and opinions on Alison-Madueke’s financial activities and transactions (Al
Jazeera, 2017; EFCC, 2020).
 CASES FOR FORENSCI ACCOUNTING
• Commercial Disputes
• Divorce and Matrimonial Disputes
• Financial Crime
• Contentious Insolvency
• Financial Fraud
• New York gangster AI Capone
• Divorce for Sir Paul MacCartney and Ms. Heather Mills
• Former Beatle case
• Civil trial of OJ Simpson (NFL superstar)
• Downfall of companies of Robert Maxwell
• Bernard Madoff fraud
 LESSON FROM CASES
• Fraud is a growing business both as individuals and business
• Fraud costed $2.9 trillion in 2009
• Association of Certified Fraud Examiners (ACFE) estimates that 5% of revenue of business loss by fraud
• lack from internal controls
• Long incubation period
• executive level fraud are costly
• Small business and individuals vulnerable

(Kass-Shraibman, 2011)
 INDUSTRY ACCPLICATIONS
• FA helps in cases relating to customs,
insurance, zakath , taxation and financial
cases (Dada et al., 2013).

• expert witnesses, litigation support

consulting and fraud
investigation(Alzahrane, 2023)
 CHALLANGES

Research in Banking industry in South • lack of Internal & external control

Africa, (Akinbowale, Zerihun and Mashigo,
2023)
• inadequate governance system
• Lack of expertise in the area of using
FA should use machine learning models with analytical tools
updating new databases and clustering
analysis . • complexities due to the changes in
accounting principles and policies
Fraud theories - Triangle theory, diamond ,
fraud box model are used.
 CHALLENGES CONT…

Pizzi et al. (2021) proposed Digital transformation

(Lombardi et al., 2021),the use of Blockchain technology for audit and detect fraud in timely manner

(Ozili, 2023) complex nature of fraud

(Akinbowale et al.,2020) lack of suitable forensic accounting framework

(Ozili, 2023) accounting and non-accounting decisions made at the start, during FA
 FUTURE OF FORENSIC ACCOUNTING

• (Alzahrane, 2023) practitioners and academicians both groups were optimistic about the future path of forensic
• (Ozili, 2023) research highlights following through variety of citiations
• Bring future job opportunities related to fraud analysis, corporate finance, assurance services, cyber
investigations, forensics , litigation support and dispute resolutions
• Educational and legislative support in development of professionals
• Artificial intelligence , whistleblower hotlines , data analysis with psychological intuition are other
techniques
 THANK YOU

OPEN FOR QUESTION?

 REFERENCES

• Honigsberg, C., 2020. Forensic accounting. Annual Review of Law and Social Science, 16, pp.147-164.
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implication on the socio-economic development. Journal of Business and Socio-economic Development, 1(2),
pp.135-148.
• Rezaee, Z., Crumbley, D.L. and Elmore, R.C., 2004. Forensic accounting education: A survey of academicians
and practitioners. Advances in Accounting Education, Forthcoming.
• Huber, W.D. and DiGabriele, J.A., 2014. Research in forensic accounting-what matters?. Journal of Theoretical
Accounting Research, 10(1), pp.40-70.
• ACFE., 2022. Occupational Fraud 2022: A report to the Nations, pp.4-5.
• Karpoff J, Lee D, Martin G. 2008b. The consequences to managers for financial misrepresentation. J. Financ.
Econ. 88(2):193–215
• Kedia S, Philippon T. 2009. The economics of fraudulent accounting. Rev. Financ. Stud. 22(6):2169–99
 REFERENCES
• Stone, D.N., & Miller, T.C. (2013). The state of, and prospects for forensic and fraud research that matters. Journal of forensic & investigative accounting, 4(2).

• Hopwood, W.S., Leiner, J.J. & Young, G.R. (2008), Forensic accounting. NewYour:McGrawHill/Irwin

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implication on the socioeconomic development. Journal of Business and Socio-economic Development [online].
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