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Assignment 3: Forensic Accounting in Practice 1

Forensic Accounting in Practice

By Latrece Hart
Instructor: Dr. Gary Shelton
Business 508 Contemporary Business
February 20, 2013

Assignment 3: Forensic Accounting in Practice 2

Forensic Accounting is fast becoming a popular and interesting field of Accounting and has
become crucial to the success of any fraud case. Forensic Accounting is defined in our textbook
as accounting performed in preparation for legal review (Boone & Kurtz, 2012, pg503). A
forensic accountant analyzes financial accounts and investigates those accounts to provide
financial evidence of wrongdoing. According to Vinita Ramaswamy in the CPA Journal,
forensic accountants are responsible for:
communicating their findings in the form of reports, exhibits and collections of
documents; and assisting in legal proceedings, including testifying in court as an expert
witness and preparing visual aids to support trial evidence (Ramaswamy, 2005)
A forensic accountant essentially investigates white collar crimes, such as business fraud,
investment schemes, or fraudulent financial reporting. To carry out this responsibility, a forensic
accountant has to be a special type of person with specific skills and traits. Without forensic
accounting, many organizations might have gotten away with fraudulent practices that would
have defrauded other businesses and individuals. In the following pages, we will examine the
five most important skills necessary for a forensic accountant, the role of the forensic accountant
within a courtroom environment, the legal responsibility a forensic accountant has while
providing a service to a business and two cases where forensic accountants provided vital
Determine the Most Important (5) Skills That a Forensic Accountant Needs to Possess and
Evaluate the Need for Each Skill
Assignment 3: Forensic Accounting in Practice 3

The five skills believed to be the most important for a forensic accountant are analytical
skills, communication skills, strong accounting background, and an understanding of legal
concepts and the legal process.
A forensic accountant should possess great analytical skills. Through a web based survey
conducted by the American Institute of Certified Public Accountants (AICPA) in 2008, 78% of
attorneys surveyed viewed analytical skills as the most important skill a forensic accountant
should possess (Davis, Farrell & Ogilby, 2010). To analyze a companys accounts, a forensic
accountant has to utilize his/her accounting skills to be able to find any evidence of wrongdoing.
Often fraudulent data is embedded within the financial statements. A forensic accountant must
be able to take the financial statements and other documents and unravel how the fraud actually
took place. He or she has to evaluate all transactions that have been listed, and with financial
accounting principles, determine any evidence of fraudulent activity that created a loss to another
business or individual. The evidence is not always apparent to the naked eye. Analytical skills
add more value to a forensic accountants ability to audit the books.
Forensic accountants should also possess strong communication skills. Oral and written
communication skills are especially important when the accountant must act as an expert
witness. The forensic accountant must be able to effectively break down in simplistic terms their
findings to a judge and jury. The communication skills are also necessary to enable the forensic
accountant to conduct interviews to obtain any vital information useful in the investigation
(Ramaswamy, 2005). The American Institute of Certified Public Accounting (AICPA) indicated
in their survey that communication skills are key to the effectiveness of a forensic accountant
and that their survey also shows effective oral communicator is essential to representing a
position in a court of law (Davis, Farrell, & Ogilby, 2010). Within communication skills is the
Assignment 3: Forensic Accounting in Practice 4

ability to listen. Mike Yankunas, CPA and CFE, stated in his article, Need A Forensic
Accountant? Heres What to Look For, that a skilled forensic accountant will:
listen to the opposing counsels expert opinions and know how to contrast those points
on a professional level without being unpleasantly confrontational or argumentative.
(Yankunas, 2011)

The forensic accountant should be comfortable with providing evidence and having the ability to
convey their opinion.
A strong accounting background is also crucial to being a forensic accountant. The forensic
accountant should have a background and knowledge of the generally accepted accounting
principles. Fraud takes place when financial accounts are misrepresented. According to
Accounting Today, forensic accountants are asked to calculate damages in lawsuits. They also
have to value cash assets and real estate. They work with other tax accountants, auditors, and
economists (Hecht & Redmond, 2010). In the Journal of Business & Economics Research,
experts find that it is imperative to have a strong accounting background; a thorough knowledge
of auditing, risk assessment, and control and fraud detection; and a basic understanding of the
legal system (Nunn, McGuire, Whitcomb, & Jost, 2006).
Finally, a forensic accountant should have an understanding of legal concepts and the legal
process. Forensic accountants are involved often from the beginning of a case to the very end as
a witness. The accountant may not be called upon to testify. However, the forensic accountant
often suggests the questions to ask during interrogation or be called upon to provide
interpretation of the documentation brought forward as evidence (Nunn, McGuire, Whitcomb, &
Jost, 2006). By being able to incorporate strong analytical skills, communication skills,
Assignment 3: Forensic Accounting in Practice 5

accounting background, and knowledge of legal concepts, a forensic accountant becomes a hot
commodity in the business world.
Describe the Role of a Forensic Accountant Within a Courtroom Environment
The role of a forensic accountant in a courtroom is to provide litigation support and expert
testimony, if necessary. Within a courtroom, the forensic accountant acts as an advisor to the
attorney. As the advisor, the attorney will consult with the accountant on how to proceed with
the case. The opinion of the forensic accountant is the foundation of fraud cases and claim
settlements. When in the role of expert witness, the forensic accountant will explain in the
simplest of terms the information they researched and the findings. The forensic accountant
must act in this role to present the information before the judge and the jury in a convincing way
(Ramaswamy, 2005). Charts and other types of visual aids are shown and the forensic
accountant is tasked with interpreting this information and conveying it to the court. The role of
the forensic accountant is to be objective and impartial while giving expert opinion. According
to Les Nunn in the Journal of Business & Economic Research, while in court, the forensic
accountant must keep in mind the judge and jury may not be familiar with accounting jargon
(Nunn, McGuire, Whitcomb & Jost, 2006).
Analyze the Legal Responsibility a Forensic Accountant Has While Providing Service to a
Forensic accountants have a legal responsibility overall to determine and report any
misrepresentation of financial data in any form to the organization with which they are employed
and to the courts when they are required. Forensic accountants have been historically hired by
organizations as well as government agencies to investigate and report fraudulent reporting or
Assignment 3: Forensic Accounting in Practice 6

misappropriation of funds. However, a forensic accountants job duties are not just reactive.
Now, businesses are hiring forensic accountants for preventative measures. Companies are now
implementing systems to measure and monitor the internal controls in place to uphold the
companys integrity and compliance with their code of ethics. Forensic accountants are being
hired to assist in setting up these programs (Ramaswamy, 2005). Vinita Ramaswamy wrote in
the article for CPA Journal, Corporate Governance and the Forensic Accountant,
By ensuring the integrity of financial statements, developing a consistent system of corporate
governance, disseminating such information within and outside the company, ensuring that
governance policies and objectives are interwoven into the internal control system, setting up
fraud prevention systems, and investigating any existing fraud, the forensic accountant can assist
in identifying, exposing, and prevent weaknesses in three key areas: poor corporate governance,
flawed internal controls, and fraudulent financial statements. (Ramaswamy, 2005)
Legal responsibilities sometimes bring with them ethical dilemmas. If a forensic accountant
uncovers fraudulent acts or violations of the companys compliance policy, he/she has to make a
determination to either turn a blind eye or report the business to the appropriate authorities, in
other words whistleblowing. WorldCom filed Chapter 11 bankruptcy in July, 2002, a month
after they announced misrepresentation of financials to the tune of $3.8 billion in expenses. The
companys internal auditing team (forensic accountants), headed by Cynthia Cooper, found
unusual accounting entries in the financials and brought this to the attention of the board of
directors, who had no choice other than to announce the findings (Farrell, 2008). Through the
internal audit teams diligence, fraudulent accounting practices were brought to light instead of
overlooking the issue.
Research (2) Cases Where Forensic Accountants Have Provided Vital Evidence In A Case
Michael Jackson, mega pop star, was investigated and tried for alleged sexual abuse of a 13-
year old boy at his Neverland Ranch in 2005. In this case, Jackson was indicted for four counts
Assignment 3: Forensic Accounting in Practice 7

of molesting a minor, four counts of intoxicating a minor in order to molest him, one count of
attempted child molestation, and one count of conspiring to hold the boy and his family captive
at the ranch. The 13-year old and his family changed their story. The prosecution requested and
was permitted to deposition Jacksons financial records to examine his financial situation. They
felt Jacksons financial status was the reason for the change in the familys story. A forensic
accountant was hired by the prosecution to examine Jacksons financials to determine a
conspiracy plot on Jacksons part in hopes that a documentary on his life would be profitable.
The prosecutions claim was that Jackson was overspending. He was allegedly spending over
$20 million a year but only making $11 million, and that he was on the verge of bankruptcy.
John Duross OBryan, a forensic accounting expert, was brought in to review Jacksons financial
records. After careful review, OBryan testified that Jacksons assets were valuable, with the
Sony Music Publishing Catalog worth almost $1 billion. Assets were traced by the forensic
accountant from 1999 to 2004. OBryan was only given one balance sheet and the determination
was that this balance sheet was prepared on tax basis and assets were probably higher in value.
The forensic accountant confirmed a huge amount of debt (Hancock, 2009)
O.J. Simpson, former professional football player, was arrested and charged with the murder
of his wife, Nicole Brown Simpson, and Ron Goldman in 1994. He was found not guilty in the
murder trial in criminal court. However, Simpson stood trial for civil charges filed against him.
Simpson claimed he was broke and would not have the money to pay any settlement. Forensic
accountants were brought in to review Simpsons financial records and determined Simpson had
millions of dollars hidden away. Based on the evidence provided by the forensic accountants,
the plaintiffs in the civil case were awarded a $33 million settlement (Kessler, 1997).

Assignment 3: Forensic Accounting in Practice 8

The importance of forensic accountants in todays economy is hard to ignore. A forensic
accountant works long hours analyzing financial accounting records, investigating all
information gathered, and compiling everything to present in legal proceedings. A forensic
accountant is often asked to testify as an expert witness to provide clarity in evidence presented.
The forensic accountant is a person who has beyond normal accounting skills. Specific skills
such as analytical skills, communication skills, a strong accounting background, and an
understanding of the legal process are paramount in achieving success in this position. Without a
forensic accountant, many companies would be able to get away with fraudulent activity.

Assignment 3: Forensic Accounting in Practice 9


Boone, L.E. & Kurtz, D.L. (2012 Update). Contemporary business (14
ed.). Hoboken, NJ:
John Wiley & Sons.
Davis, C., Farrell, R., & Ogilby, S. (2010). Characteristics and Skills of the Forensic Accountant.
American Institute of Certified Public Accountants.
Farrell, G. (2008). WorldComs whistle-blower tells her story. USA Today. Retrieved on
February 16, 2013 from
Hancock, D. (2009, 07). Jackson's money woes surface. CNN.com. Retrieved February 16, 2013,
from http://www.cbsnews.com/2100-207_162-692764.html
Hecht, M. & Redmond, M. (2010). Unveiling the Mystery of Forensic Accounting. Accounting
Today. Retrieved on February 17, 2013 from

Kessler, M.G. (1997). Forensic Accounting in History and Literature. The Kessler Report, vol.1.
Retrieved on Feburary 17, 2013 from
Nunn, L., McGuire, B. L., Whitcomb, C., & Jost, E. (2011). Forensic Accountants: Financial
Investigators. Journal of Business & Economics Research (JBER), 4(2).
Assignment 3: Forensic Accounting in Practice 10

Ramaswamy, V. (2005, 03). Corporate Governance and the Forensic Accountant.
www.nysscpa.org. Retrieved on February 17, 2013 from
Yankunas, M. (2011). Need a Forensic Accountant? Heres What to Look For.
www.wipfli.com. Retrieved on February 17, 2013 from