Article written by James DiGabriele, DPS, CPA/ABV/CFF, CFSA, FACFEI, Cr.FA, CVA and brought to you by Robert O’Block

Article written by James DiGabriele, DPS, CPA/ABV/CFF, CFSA, FACFEI, Cr.FA, CVA and brought to you by Robert O’Block. Influenced by business, government, regulatory authorities, and the courts, there is evidence that a higher level of expertise is now required to analyze present day complicated financial transactions and events. As a result, forensic accounting has emerged in the forefront of the crusade against financial deception.  Currently, universities and colleges are offering forensic accounting courses or are considering adding them to their curriculum; this evolution has revealed a void in the significant skill set outcome that should be developed.

Introduction

There is continuous validation that preventing fraud and uncovering deceptive accounting practices is in strong demand as companies respond to closer scrutiny of their financial activities by shareholders and government agencies. In recent history, the Federal Bureau of Investigation estimated that white collar crime costs the United States more than $300 billion annually. Many of these crimes are difficult to identify because the perpetrators have concealed their activities through a series of complex transactions. Usually, large volumes of financial information are involved, and the complexity of these investigations can be a strain on a company’s resources.

In addition, according to an AICPA discussion paper, the use of forensic accounting procedures to detect financial reporting fraud should be increased. The paper argues that forensic accountants and financial statement auditors have different mindsets. Hence audit teams need to be trained to incorporate more forensic accounting procedures into their audit practices as well as retain more forensic specialists to help detect problems.

Forensic accountants currently apply their unique expertise to an array of diverse assignments and are often hired to determine whether there has been any intentional misrepresentation associated with a company’s financial records. A fraud examination can range from overvaluation of inventory and improper capitalization of expenses to misstatement of earnings and embezzlement

Organizations also hire forensic accountants for guidance when evaluating potential business transactions. Forensic accountants assess a company’s true worth during a merger or acquisition, ensuring that a purchaser is knowledgeable of a target firms financial situation and value while simultaneously searching for suspicious accounting activity. Forensic accountants often provide accounting expertise during existing or pending litigation. This work is primarily focused on quantifying damages in cases of personal injury, product liability, contract disputes, intellectual property, and uncovering hidden assets in complicated matrimonial law cases. These types of services may ultimately culminate in providing expert witness testimony.

Forensic accountants also play an important role in government. They work for agencies such as the Federal Bureau of Investigation, Central Intelligence Agency and Internal Revenue Service. Forensic accountants in this role look for signs of suspicious financial activity and fraud by individuals and businesses. In addition, forensic accountants have assumed a more visible role in helping the government evaluate accounting and banking records of suspected terrorists.

Preparing Future Forensic Accountants to Meet the Demand

There have been many indications that the demand for forensic accounting services will continue to increase; that demand requires proper training to meet market challenges. The National Institute of Justice has prepared a model curriculum guide for education and training in fraud and forensic accounting to aid academic institutions, public and private organizations, practitioners, faculty and prospective students. Practitioner articles have identified specialized skills and technical abilities of a forensic accountant. A forensic accountant is usually familiar with criminal and civil law, understands courtroom procedures and expectations, and embodies investigative skills that include the methods of recognizing fraud abuse. A forensic accountant thinks creatively in order to consider and understand the tactics a fraud perpetrator may use to commit and conceal fraudulent acts. Additionally, a forensic accountant needs to clearly and concisely communicate findings to various parties, including those with less knowledge of accounting and auditing. Successful forensic accountants must have analytical abilities, strong written and verbal communication skills, a creative mindset and business acumen. A forensic accountant must be able to interview and elicit information from potentially uncooperative people and possess a strong amount of skepticism.

Forensic accountants are distinctively positioned to be able to uncover financial deceptions. The prominent skills are; an in-depth knowledge of financial statements with the ability to critically analyze them and a thorough understanding of fraud schemes. A forensic accountant should have the ability to comprehend the internal control systems of corporations and also be able to assess the risks. Finally, the knowledge of psychology helps forensic accountants to understand the impulses behind criminal behavior that motivate and encourage financial deception. Interpersonal and communication skills which aid in disseminating information about the company’s ethics, an understanding of criminal and civil law, as well as of the legal system and court procedures are also skills that aid forensic accountants. Rezaee, Crumbley & Elmore (2006), surveyed opinions of practitioners and academics regarding the importance, relevance, and delivery of forensic accounting education. The results indicate that the demand and interest in forensic accounting will continue to increase. Both groups of respondents viewed accounting education as relevant and beneficial to accounting students.

A View from the Field

The results from a recent survey further validate the importance of a specific skill set inherent to forensic accountants. A questionnaire submitted to forensic accounting practitioners and accounting academics asked about their views of what skills are deemed necessary and important to a forensic accountant. Participants were e-mailed using www.surveymonkey.com and were asked the extent to which they agreed with the statements addressing each of nine competencies that were deemed important skills of a forensic accountant. The agreement ratings were made on a five-point Likert scale ranging from “strongly disagree” to “strongly agree.” The following scores were assigned to each response: strongly disagree, 0; disagree, 1; neither, 2; agree, 3; strongly agree, 4.

Ten questions were asked to practitioners and academics that pertain to their views of what skills are deemed inherently important to a forensic accountant. The first question was; “An important skill requirement of a Forensic Accountant is deductive analysis – the ability to take aim at financial contradictions that do not fit in the normal pattern of an assignment.” In consideration of the barrage of recent financial reporting scandals this skill appears to be necessary and essential for a forensic accountant to meet the objective of uncovering a potential financial fraud. Forensic accounting courses taking aim at financial misrepresentations should incorporate course objectives to meet this ability. Both groups agreed.

The second question was; “An important skill requirement of a Forensic Accountant is critical thinking – the ability to decipher between opinion and fact.” The essence of the role of expert witness is the ability to perform the task of discerning fact from fiction in order to maintain a credible testimony. Courses developed in this area should emphasize to students the ability to remove any non corroborated opinions from expert reports and testimony. Both groups agreed.

The third question was; “An important skill requirement of a Forensic Accountant is unstructured problem solving – the ability to approach each situation (inherently unique) prepared to solve problems with an unstructured approach.” Accounting education has been based around concentrating on compliance with rules and procedures. This skill is a direct contradiction to this concept. It can be argued that a shortcoming of auditors is not seeing the proverbial forest beyond the trees. Again, practitioners and academics did not differ.

The fourth question was; “An important skill requirement of a Forensic Accountant is investigative flexibility – the ability to move away from standardized audit procedures and thoroughly examine situations for atypical warning signs.” Practitioners and academics agreed on the importance of this skill, further emphasizing the need in accounting for a more open minded skill set.

The fifth question was; “An important skill requirement of a Forensic Accountant is analytical proficiency – the ability to examine for what should be provided rather than what is provided.” Considering the post financial fraud regulatory environment, solving a financial puzzle with less than a complete set of pieces appears to be the direction the current business forum is heading. Practitioners and academics agree on the importance of this skill.

Question six was; “An important skill requirement of a Forensic Accountant is oral communication – the ability to effectively communicate in speech via expert testimony and general explanation the bases of opinion.” Both groups strongly agreed that oral communication is an important skill of a forensic accountant

The seventh question was; “An important skill requirement of a Forensic Accountant is written communication – the ability to effectively communicate in writing via reports, charts, graphs, and schedules the bases of opinion.” All groups strongly agreed on the importance of this skill.

The eighth question was; “An important skill requirement of a Forensic Accountant is specific legal knowledge – the ability to understand basic legal processes and legal issues including the rules of evidence.” Academics and practitioners agreed that specific legal knowledge is an important skill of a forensic accountant.

The ninth question was; “An important skill requirement of a Forensic Accountant is composure – the ability to maintain a calm attitude in pressured situations.” The respondents did not differ in opinion of this skill, agreeing strongly that this is an important proficiency. The most prevalent area where this is necessary is expert testimony in either deposition or court. The composure of an expert can be an integral component to the ultimate case outcome.

The tenth question asked the participants to identify themselves as a forensic accounting practitioner or academic.

The results also illustrated two distinct areas of competency based on the items with high loadings in the principal component analysis knowledge/ability and performance. The knowledge/ability component relates to whether an individual has the background knowledge and thinking skills to be effective, while the performance component relates to the individual’s ability to turn this knowledge/ability into an effective presentation. The groups agreed on all six knowledge/ability items; deductive analysis, critical thinking, unstructured problem solving, investigative flexibility, analytical proficiency and specific legal knowledge. Both groups agreed on the performance items; oral and written communication and composure. Forensic accounting educators may also consider segregating course content based on these two distinct areas.

The essence of an effective forensic accountant/expert witness is the ability to discerning fact from fiction in order to maintain a credible testimony. Survey results indicated that this skill was rated as one of the more important proficiencies. Forensic accounting courses developed in this area should emphasize to students the ability to remove any non corroborated hearsay opinions from expert reports and testimony.

Accounting education has concentrated on compliance with rules and procedures. Forensic accounting is different in that problem solving becomes more of an improvised approach rather than a structured plan. This skill type is a direct contradiction to traditional accounting skills; it can be argued that a shortcoming of auditors is a narrow approach. Survey results indicate that practitioners and academics agree on the importance of a forensic accountant to move away from a narrow approach and apply a more holistic technique. These findings further illustrate the need in accounting for a more open minded skill set.

The appropriate skills of a forensic accountant illustrated in the results of this study contributes to the progress of the the literature in forensic accounting education by identifying the necessary proficiencies to be integrated in the course content.

Conclusion

The increasing demands in the current regulatory, legal and, business environments should serve as a stimulus for accounting programs to emphasize and embrace further attention to forensic accounting. The survey results indicate that practitioners and academics agree that critical thinking, unstructured problem solving, investigative flexibility, analytical proficiency, legal knowledge, oral communication, written communication, and composure are important skills of a forensic accountant. The survey results show that there is an importance of skills that are relevant to the outcome of forensic accounting education. These skills can be used as a guide to direct academic curriculum with the proper outcome objective. Future research in this area could progress to classifying skills to specific courses. For example; a course on forensic legal knowledge would be more likely to have an objective of written and oral communication rather than analytical proficiency.

–Published by Dr. Robert O’Block