Executive summary
Forensic accounting is an accounting that offers high levels of assurance and suitability for legal review. It further describes engagements from litigations, anticipated disputes and actual disputes. Forensic accounting is believed to be originated from ancient Egypt while others argue that it was officially coined in Canada. There are several historical cases associated with forensic accounting and the first is believed to be conviction of Al Cappone for evading taxes. Though not popular with most people, forensic accounting is mostly used by banks, insurance companies, and governmental entities among others. There are also six simple basic steps that assist in basic investigation of financials, they include, stating potential causes of problems and establishment of data among others. Finally, considering evolution of forensic accounting and rising concern to control fraud, forensic accountants are expected to be highly demanded. Basically, this paper highlights the importance of choosing a good accounting practice and ensuring quality control in the organization. Accounting control must be effective for a company to realize profits and enhance operations because funds management is the most important aspect in accounting or financial accounting management. This is because finances are the most important resource that can enable an organization achieves their organizational goals and objectives.
Introduction
Management is the most important aspect in operation of businesses irrespective of their sizes or nature of businesses they engage in. There are several functions of management. Though all companies and organizations consider management as the most important aspect of operations, companies opt to adopt strategic management systems. This may enhance operations of businesses and increase their profit levels in the long run. Though all functions of management are important, their importance in operations varies. However, they must be effectively coordinated towards achievements of goals of the respective organization or company. Companies should develop both short term and long term strategies to ensure that they achieve both long term and short term goals.
There are several important aspects of business. They include, marketing, management, accounting among others. These aspects have to be effectively coordinated to enhance performance of the respective organization, for instance, accounting involves financial accounts keeping. This process assists in systematic storage of financial quantitative information. Furthermore, accounting ensures effective appropriation and use of organizational funds. There are different types of accounting; they include management accounting, product control, social accounting, non assurance services, resource consumption accounting, governmental accounting, project accounting, triple accounting, fund accounting and forensic accounting among others. However, the main focus will be on forensic accounting due to rising awareness propelled by World Com and Enron scandals (Ferguson 2010, p.32).
Accounting practice is the most essential and vital practice in an organization. Though management is the core function of business operations, accounting control and management is important in ensuring that organizations maintain operation. Organizations can only achieve their goals and objectives of ensuring that they increase their profit levels and gain competitive advantage in the respective industry. There are different factors that must be considered in accounting control, for instance, forensic accounting. Forensic accounting is considered among the most important basic accounting aspect that organizations must consider enhancing tracking of funds release in the organization. Furthermore, forensic accounting is the most important aspect of accounting control that can ensure that an organization achieve their desired goal and objective of increase profit levels and market share respectively in the respective industry or market where they operate (Ferguson 2010, p.32).
What is forensic accounting?
Basically, forensic refers to suitability for court of law use. Furthermore, forensic accounting may be viewed as an area of accounting specialization that describes actual disputes, litigation or anticipated dispute engagement results. This is an accounting that offers high levels of assurance and is suitable for legal review (Singleton, and Singleton 87). Its findings are based on scientific interpretation and detection of phenomena introduced into accounting system records and books. Forensic accounting enhances reporting of economic transactions especially in legal framework and the official accounting system in the economy hence proving accountability or valuation of the respective figures. Forensic accounting integrates auditing, investigative and accounting skills. It therefore, provides an analysis suitable for court debate, discussion and dispute resolution (Ferguson 2010, p.32).
Who uses forensic accountants?
Accounting is concerned with management of funds within an organization. There are several accounting practices that are conducted by organizations. However, forensic accounting is the most important and most recent accounting practice adopted under the efficiency accounting theory. Forensic accounting aims at enhancing accountability and efficiency in operation within and among organizations. Forensic accounting is basically offered by the forensic accountants. Though it might be argued that not all organizations require forensic accountants services, these services are important to all organizations (Silverstone, and Sheetz 2011, p. 547).However, forensic accountants are mostly consulted by large scale companies and entities. This is because such companies engages in large amount transactions on a daily basis and tracking the funds within the organization by the personnel might not be easy considering other accounting personnel have other duties to undertake at the respective organization (Silverstone, and Sheetz 2011, p. 547).
Basically, forensic accountants work with financial data so as to convey complicated issues to others for better understanding. There are several people or organizations that seek services of forensic accountants. However, they seek their assistance for different reasons, they include; insurance companies, governmental entities such as Internal Revenue Service (IRS), police departments among others and banks (Silverstone, and Sheetz 2011, p. 547). Forensic accountant may also be used by victims to determine amount of loss. He or she might also be used as an expert witness in court. They are also used by accused to write summaries for court use and prepare visual aids. Additionally, an attorney may hire a forensic accountant to investigate criminal suspects’ financial trial. Furthermore, a bankruptcy court might sort services of a forensic accountant (Silverstone, and Sheetz 2011, p. 547).
Six simple steps to follow to perform a basic investigation into the financials
There are several steps that can be used to investigate finances of an organization. However, there are six steps that can be used for basic financial investigations. They include stating how potential cause could lead to the underlying problem (Hopwood, Young, and Leiner 2011, p. 231).Secondly, establishment of data that can easily disapprove or prove potential cause. This assists in development of study plan and identifies action plans actions. Third, preparation of required materials for the study, but training may also be required. Fourth, collection of the required data, and fifth, data analysis through simple statistical tools with emphasis on data graphical illustrations. Lastly, concluding, that is determining whether the data established may be the potential cause of the problem (Hopwood, Young, and Leiner 2011, p. 231).
Stating how potential cause could lead to underlying problem
Organizations must state cause for an underlying accounting problem or setback. This is an opportunistic accounting approach. In case an organization can establish the cause of an underlying problem then it can decide on the most appropriate solution to the accounting problem. Forensic accounting aims at determination of a root cause of an accounting problem. This may enable an organization to take corrective measures based on the findings of the organization on the cause of the accounting error (Hopwood, Young, and Leiner 2011, p. 231). Furthermore, this might assist an organization in avoiding such problems or causes in future hence enhance their accounting practice. Additionally, it also enables an organization to determine how an accounting cause could lead to accounting errors or problems and nature of intensity of the respective errors or problems. This could lead an organization to establish corrective measures and strategies to counter such causes and avoid the problems in future operations (Hopwood, Young, and Leiner 2011, p. 231).
Establishment of data that could lead to disapproving or approving a potential cause
There are different causes that can lead to accounting error or affect accounting practices of an organization. However, an organization must establish data that could assist the management approve or disapprove potential causes. An organization is better placed if the management can determine potential causes in advance. This can assist an organization establish strategies that can enable them effectively and adequately respond to problems and counter potential causes. Furthermore, this could enable an organization to review its accounting strategies and practices and hence adjust loop holes and avoid effects of the potential causes (Silverstone, and Sheetz 2011, p. 547).
Preparation of required materials for the study
Financial investigation is a process and not a function. It is performed under several processes and principles. These processes must be carefully reviewed and taken into consideration in case the process is to succeed and a lasting solution or recommendation established by an organization. After determination of potential causes and approval or disapproval of the respective causes, an organization or company must prepare required materials for the study of the respective finances (Hopwood, Young, and Leiner 2011, p. 231). Materials used for financial studies are determined by the potential cause’s determination and approval or disapproval of the respective potential causes. These materials must be prepared in advance to avoid instances of delayed study. It should also enable an organization to effectively plan in advance and avoid any future inconveniences on financial accounting. In this stage training may be required. This is to ensure that relevant personnel are well equipped with necessary information on the respective accounting potential cause (Hopwood, Young, and Leiner 2011, p. 231).
Data collection
Study materials preparation enables an organization to conduct the financial research and collect the relevant data. Data collection relevance mainly depends with preparation of the research materials and determination of potential causes. This will assist in determination of the research method that opts to be adopted to ensure that relevant and required data are collected. The collected data will assist the respective organization or company determines whether to adopt an opportunistic or qualitative accounting approach (Hopwood, Young, and Leiner 2011, p. 231).
Data analysis
The collected data must be analyzed to ensure that relevant and most appropriate accounting solution is adopted or enforced. Implementation of the accounting policy will also rely on the analysis of the collected data. Ineffective and inadequate analysis of the collected data may not enable an organization to prepare or enhance accounting practice. Therefore, the collected data must be effectively analyzed. This can only be possible in case the organization or company adopts an effective data analysis technique. There is several data analysis technique and choice of the analysis technique to use or apply depends with the nature and type of data collected (Hopwood, Young, and Leiner 2011, p. 231).
Concluding
The data collected and analyzed must be discussed by the relevant personnel in the organization and decision made. After careful review of the collected and analyzed data, it can be determined whether it represents a potential cause or not. Decision made is influenced by the data collected and analysis made (Hopwood, Young, and Leiner 2011, p. 231). Therefore, data collection method should be effective and analysis realistic to ensure that the decision made positively impacts the organization’s or company’s operation. This is because in case the materials chosen for study were not effective and inadequate training offered then the organization might not be able to ascertain on the potential cause considering ineffective process in determination of the causes ((Hopwood, Young, and Leiner 2011, p. 231).
Origins of Forensic Accounting
Forensic accounting is believed to be among the oldest professions on earth, for instance, in Egypt forensic accountants were famously referred to as “ears and eyes” of king. However, according to history of the profession, forensic accounting was first used to convict Al Cappone for evading taxes. It is believed that forensic accounting originated from ancient Egyptian scribes accounting for pharaoh’s assets. However, the first forensic case in court was reported in 1817 when an accountant was expected to testify on bankruptcy hearing. It was later adopted by a Scottish accountant in 1824, but the forensic accounting had not yet been coined (National association of Forensic accountants 2011, p. 1).
Forensic accounting is among the oldest accounting practices to be coined and applied in operations of organizations ad companies. Basically, forensic accounting is concerned with tracking of financial expenditure and use of an organization. It also ensures or enhances accountability among accounting personnel. In the last centuries, there has been rising concern on accountability of accounting personnel and management of an organization. Several companies and organizations have gone bankrupt and ceased operation due to poor accounting or financial management. Furthermore, most organizations operated on opportunistic strategies, and ignored the qualitative strategy of accounting (National association of Forensic accountants 2011, p. 1).
Forensic accounting is based on efficiency and accountability. Therefore, due to the rising cases of losses and closure of operation, there has been increased concern on importance of forensic accounting. Forensic accounting was initially used in Egypt by the workers of the king to enhance efficiency among palace workers. It aimed at ensuring that employees at the palace efficiently operated and guarded against any practices that could lead to mismanagement of finances at the palace and assets owned by the king (National association of Forensic accountants 2011, p. 1).
Historical cases of forensic accounting
Forensic accounting has been practiced for several years by organizations and companies. However, there are several cases they enhanced awareness for forensic accounting. These cases are basically referred to as the historical forensic accounting cases. This is because decisions on the cases were influenced by conclusion made by forensic accountants during those times. There are several historical cases of forensic accounting, the first and most famous being conviction of Al Cappone. There are several cases that shocked many globally and hence have been referred to as famous and historical forensic accounting, for instance, in 1910 and Dr Hawley Harvey Crippen from America was hanged for found guilty of hanging his wife Cora. Crippen poisoned his wife and then buried her remains personally in their home at London. Secondly, death of Marilyn Sheppard in 1954 and arrest, trial and re-trial of her husband has remained to be one of the unsolved murders in the United States. There are other historical forensic cases such Napoleon Bonaparte’s death, Harry Houdini’s death among others (All-about-forensic-science.com 2011, p. 2). Though forensic accounting was not basically coined for use in accounting practices in organizations, its efficiency and classification under efficiency accounting theories has increased its use in organizations. The historical cases were also complicated and collection of evidence difficult. However, due to forensic accounting, reliable evidence was collected and judgment made based on the evidence collected (All-about-forensic-science.com 2011, p. 2).
Future of forensic accounting
Extensive use of computers has changed several aspects globally. This is because computer use is widely adopted due to technological advancement and increased internet subscription (Brown 2008, p. 3). In the recent past, legal investigation has extended to use of electronic detection hence proved reliability in searching, locating and securing obtained evidence documents. Furthermore, most documents are created with aid of electronic Medias and computer applications. Digital data nature is also suitable for investigation. This has led to the legal community taking advantage of discoveries by electronics (Brown 2008, p. 3).
Computerized devices have greatly increased efficiency in collecting of evidence since it can be stored for future use. Adoption of computer use will therefore, lead to effective analysis, classification, review, and presentation of obtained data. This is likely to improve quality of data collected by forensic accountants in future (Manning 2010, p. 54). Furthermore, this might lead to presentation of organized and summarized data in future. This might also ease communication and easily persuade or convince. Data stored through computerized devices may not be easily destroyed and this might also improve quality and reliability of evidence in future (Manning 2010, p. 54).
Forensic accounting may also improve in future due to development of Center for Financial Research and Analysis (CFRA 2011, p. 1). This is because CFRA is an independent body and reputable for quality financial solutions and research. This body is recognized for leading research in forensic accounting and development of exception-based research products. Due to the quality of services offered by this organization. It has greatly increased confidence of organizations in its services. This might increase awareness and rise in demand in forensic accounting considering rising cases of fraud among and between companies, organizations and businesses (CFRA 2011, p. 1).
Forensic accounting was started in the early years, however, it was not well known by many until recently. The discipline was developed some time back, but has been responding positively to changes in the government and business environments. This is a clear indication that it will improve practitioners’ standards in future. Much might not be predicted, but present events have shown quick changes in the globe. Considering the rising cases of fraud, forensic accountants are expected to be highly demanded in future (Poinier 2011, p. 1).
Factors that might complement forensic accounting to ensure improved accounting practices
Marketing changes
A company has to possess a good and experienced marketing team hence respond to the marketing changes in each environment the company opt to operate. This enables the company to avoid unnecessary losses. It is through marketing that a company reaches the target groups hence need to be effective. Marketing is a process and needs to be consistently and frequently reviewed. The company should establish and effective marketing process, this will enable the business to effectively and adequately address dynamic business factors and respond to accounting practice changes in the market. It will also enable the company to establish flexible accounting strategies hence increase their profit level and market share in the respective industry (Silverstone, and Sheetz 2011, p. 547).
Choosing of location
Before a company sets up a business it has to carry out market research hence determine if the location favors the nature of the business. It should be located where the operation costs are reasonable. Operation requires finances to be successful. However, organizations or companies need to operate under limited budget to ensure it obtains profit. Strategic location of a business entity assist an organization reduces costs it incurs in support services and general cost of operation. In return, this increases profit level for an organization or company (Manning 2010, p. 54). Therefore, an organization opts to locate its premises in strategic places where costs of operations are low to increase profit levels. It will also enhance effective accounting process by the organization (Silverstone, and Sheetz 2011, p. 547).
Risk management
When a business is incorporated, it is bound to loss or profit. Therefore, a company should effectively have an effective risk management plan. This will allow the business to have a competitive advantage over other companies and hence increase their level of income. Companies opt to establish an effective risk management plan to ensure that it effectively and efficiently respond to uncertainties in the business environment. This will also boost accounting practice by the company and avoid unnecessary losses by establishing emergency funds to respond to any uncertainties in the business environment (Silverstone, and Sheetz 2011, p. 547).
Key issues and factors and important observations to be made to ensure effective adoption of accounting theory or strategy
Company strategies suppleness
A company can adequately handle and endure challenges and pressures in the industry due to effective response to the changes in the environment. A company might emerge among the best and the largest in the industry if it adopts an effective accounting practices or theory (Manning 2010, p. 54). Though accounting theory may be opportunistic or efficiency, the most recommendable and commonly used theory is the efficiency accounting theory. Efficiency accounting theory adoption may enable an organization or company to implement its strategies alongside the theory and easily coordinate functions and achieve their goals and objectives (Silverstone, and Sheetz 2011, p. 547).
Several companies emerge as global fitness businesses by developing and enforcing their spiritual, physical and mental strengths. This has enabled the firms to effectively operate, gain and sustain competitive advantage in different industries where they operate. In addition, a company may also be able to forecast on the expected outcomes in the business world. Consumers, shareholders, and suppliers’ expectations are vivid to the management of the company (Manning 2010, p. 54). For instance the suppliers’ expectations, the company has an outlined code of conduct for the suppliers of both products and services. This is possible if a company adopts an efficiency accounting theory in operation in the respective industry. This is because opportunistic theory may not be effective in operation of several organizations considering opportunities are limited (Silverstone, and Sheetz 2011, p. 547).
Strategic situation analysis
Careful analysis of the situation gives a company a chance to work out a new strategic plan or alter already existing strategies that have not been recently efficient. The company also needs to define its market so as to enable for competition and consumer analysis. The company should focus and effectively analyze future product-market changes (Manning 2010, p. 54). Analysis of strategies aims at identifying and describing potential buyers, estimating the market size and its expected growth rate, understanding customers’ expectations and identifying close competitors in the insurance industry. This may also enable a company to decide on the accounting theory to adopt and use in the respective industry or market and enhance their financial practices (Silverstone, and Sheetz 2011, p. 547).
Designing of the market driven strategy
Designing of the market driven strategies involves several activities that aim at improving operations in the organization, for instance, defining market segments, assessment of strengths and weaknesses, identification of available opportunities in the market and evaluation of the prevailing level of competition in the industry. This research is important for the development of an organization as it enables introduction and development of new products by firms, determining the target market among others (Silverstone, and Sheetz 2011, p. 547).
Strategic positioning and market targeting, there are several situational factors that influence gaining of marketing advantage by a firm. Markets are targeted with an aim of identifying potential customers that have an interest in the products of the company. It aims at matching the company’s capabilities and segment requirements in the respective product markets (Manning 2010, p. 54). On the other hand, positioning strategy incorporates or takes into consideration value chain strategies, price, promotion and products of the respective company, which they use in the respective target market to effectively, compete against other related firms in the market and meet the requirements and expectations of the market (Silverstone, and Sheetz 2011, p. 547).
Marketing relationship, there are several partners of marketing relationship. They may contain the following: “internal teams, suppliers, members of the marketing channel, competitor alliances, and the end user consumers”. The company should be very careful and value the customers that contribute to the successful productions of the company day after day (Manning 2010, p. 54). This will enhance the provision of superior value to the customers in the long run. The strategic partnering may lead to a firm gaining a competitive advantage over other firms in the industry. Therefore, companies should consider partnering strategically to gain competitive advantage (Silverstone, and Sheetz 2011, p. 547).
Planning of a new product: the company may decide to introduce new products in the market due to the inferiority of its existing products in the market leading to decreased sales. A Company may produce a high-quality product at a competitive price if it closely monitors and coordinates the planning of new products. Before introducing a new product in the market, a Company has to identify gaps in customer satisfaction hence introduce an improved product (Silverstone, and Sheetz 2011, p. 547).
Developing of market-driven program
The location of the market and its targeting strategies for the already existing products and the ones that are yet to be produced play a very important role when it is necessary to choose and to work out the vital components of the strategic program. Positioning strategy is a combination of promotion, product, price and distribution strategies (Silverstone, and Sheetz 2011, p. 547).
The positioning strategy is carried into effect by the marketing mix. Its objective is to gain favorable positioning efficiently and effectively as possible. Strategic management of brands, the turning point of positioning strategy is the product. It is worth noting that the strategic plan of the market consists of “decision on problem products, development of new product plans, and managing successful products”. Strategic management of brands consists of a company’s portfolio management and brand value building for the purpose of the overall company performance (Silverstone, and Sheetz 2011, p. 547).
Effective management largely depends on the foundation of the management principle as well as the process of management being used. On the other hand, the concept of employee engagement is a management approach that has been employed to boost individual as well as organizational activities. Moreover, scholars have shown that there exists a relationship between employee’s activities and organizational dedication, employment fulfillment as well as employee engagement. Research has shown that there exists a direct relationship between employee engagement and managers’ effectiveness (Manning 2010, p. 54). In general, it is important to note that employee engagement incorporated with managers self-efficacy is imperative ingredients of a company’s success that are likely to improve managers’ effectiveness. Consequently, effective management is vital in order to achieve considerable development in any organization (Silverstone, and Sheetz 2011, p. 547).
Conclusion
There are different types of organizations in the global economy. These companies or organizations have different accounting policies based on the accounting strategies and general business policies of the respective organization or company. Generally, accounting policy adopted and established by an organization can either be based on efficiency or opportunity in the respective organization. Therefore, a company or organization may adopt an opportunistic accounting policy or efficiency accounting policy.
Considering evolution of forensic accounting, it has changed from theft prevention measure to court testifying and lately, creation of investigative accountant. Furthermore, there is increase in fraud cases and need to respond to them adequately is also increasing. Therefore, considering advancements in technology such as adoption of computer technology in gathering and storing evidence and other reputable forensic accounting organizations such as CFRA, forensic accounting is bound to increase in popularity. Finally, forensic accountants are forecasted to experience increase in demand for their services due to rising concern over fraud.
List of References
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Brown, M. 2008, Forensic accounting-past, present, & future. Web.
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Ferguson, D. 2010, Careers in focus: Forensics. Infobase Publishing, New York.
Hopwood, W, Young, G and Leiner, J. 2011, Forensic accounting and fraud Examination. McGraw-Hill Companies, London.
Manning, G. 2010, Financial investigation and forensic accounting. CRC Press, Chicago.
National association of Forensic accountants, 2011, The history of forensic accounting. Web.
Poinier, J. 2011, Forensic accountants use their number-crunching skills to ferret out fraud And provide litigation support. In today’s scandal-prone business climate, it’s the fastest growing job in the accounting field. Web.
Silverstone, H and Sheetz, M. 2011, Forensic accounting and fraud investigation for Non-Experts. John Wiley and Sons, New York.
Singleton, Tommie, and Singleton, A. 2010, Fraud auditing and forensic accounting. John Wiley and Sons, New York.