Forensic Accounting consists of the reconstruction, review, and analysis of accounting and financial information undertaken to determine the intent and effect of the transactions that are reflected by the information. Forensic Accounting encompasses different types of data-gathering and analytical procedures and is typically undertaken to provide answers to questions concerning financial and/or personal accountability.
Forensic Accounting engagements are very fact-and-circumstance driven and should be undertaken only with specific goals in mind coupled with an understanding of the benefits to be derived from the work vs. the cost of the work. Elements of Forensic Accounting are often used in other types of engagements.
Examples of Forensic Accounting Assignments are as follows:
- Identify non-disclosed spending or the existence of non-disclosed assets.
- Determine levels of cash flow available for discretionary spending over time.
- Determine the level of compliance with federal or State tax rules and regulations.
- Determine the economic effect of a transaction or set of transactions vs. the represented purpose of the transactions.
- Reconstruct or analyze the level of compliance with an agreement, such as a pre- or post-nuptial agreement, a trust document, or a business contract.
- Isolate non-business transactions in order to normalize the income or cash flow of a business.
- Assess the conclusions reached by another forensic accountant.