In early days, it was supposed that investigating and detecting white-collar transgression was a part of the general accounting function. Conventionally, it was the duty of either internal or external auditors to catch the frauds in an organization by performing periodic audits. It was however not the case to be. In fact, the auditors can only go by book and can check compliance of documents produced by the company to the general rules and regulations of the company. It was this bottleneck that brought forward the idea of a new branch of accounting to detect the fraud for companies that suspect fraudulent acts being performed in them. This area of accounting is known as forensic accounting. (FORENSIC ACCOUNTING DEFINED, http://www.cris.com/~dfillmer/forensic.htm, Retrieved on 28/06/2003).
The specific field of accounting in which accounting, auditing and investigative skills are integrated together is called Forensic Accounting. The lateral meanings of term “Forensic” are “Belonging to, used in or suitable to courts of judicature or to public discussion and debate.” Based on the above-mentioned skills, a Forensic Accountant provides an analysis that is appropriate for the judiciary to form the basis for discussion, debate and eventually resolution of affair. (What is Forensic Accounting?
In a lot of ways it is fairly similar to the forensic field of the police department. In the fashion that they dissect the affairs and cases, similarly this branch of the accounting breeds accountants who are dedicated to the field of auditing and it is their specialty to understand the minutest details of the functions and the operations of any business. It is not only the business firms and multinationals, which need to use these services, but even the local and federal governments may need to hire the services of these forensic accountants.
It is not an entirely new field and has existed for quite sometime but the importance of the field has been growing over the years. The concept was promulgated right after the crash of 1929, October 22nd and it was then the need was felt to have a certain format of forensic accounting.
It was the era when the world was on the path to recovery and the nations were coming out of the impact of First World War, and while they were recovering the developmental projects were in full swing. During the period of chaos and anarchy United State’s Economy was emerging as a leading economy and they were the hub of all the financial and economic activities. The banking sector over there was on the rise and they had the access to the funds that could be transferred to the European projects. There were a number of developmental projects and people would go to borrow in US markets. They would often form companies and float them on the Stock Exchange and even borrow from the banks. These borrowings were backed by fictitious assets and in reality the projects just did not exist. There were no inquiries and people were releasing the money for these projects.
Once the people realized that the dividends were not forthcoming and the investments were sinking it became apparent that the people were very close to losing their moneys. People wanted to liquidate their investments in these companies and they went on a selling spree, which made the stock market collapse. Even the good companies lost a lot of share value. People who had deposited with the banks went to extract their investments and since the banks were short of money this meant that the banks went bankrupt within a span of hours. So the companies, the stock exchange and the banking sector all crashed in a single day and with it the trust and faith of the people was lost as well. The after affects were that the entire economy went into a slump and this slump lasted for almost a decade and engulfed the entire world in it.
This entire catastrophe had its roots in the ability as well as the inefficiency of the people to regulate the system. There were no checks and balances in place and as a result it brought about such a big mishap and the aftershocks could be felt for years after the actual event had taken place. This is where the people began to feel that there was a need for a special field, which would oversee such activities, and at the end of the day the investments would be kept secure because there would be someone who would be dissecting the company accounts and would be revealing the truth behind the operations of any company.
Forensic accounting is a huge field. The companies, organizations, firms and multinationals have operations that are very overlapping and they run into a number of unknown and unexplored areas. That is why the process of running the audits and having a trial check or the checking of the affairs of the business from top to down is a fairly time consuming process. It does not take time because it is lengthy but it is lengthy because there are so many things and none of those things can be overlooked. There are the intricate details in the minutest of details of the business that contain a lot of information. These are the places where one may find the loopholes and the people are able to make their gains by bluffing the public.
As unethical as it may sound but this is where the concept of kickbacks and the bribes comes into the picture. People are willing to go to any length to ensure that they are not reveled. And they do not want to come out in the open because they are either involved or ate part of something wrong in such a manner and of such magnitude that they have risked everything for it. Forensic accounting is dedicated to finding the culprit before the act is actually committed. The idea is to find the guilty party before the actual sin. That is an arduous and grilling task and it requires a lot of effort. One can imagine how difficult it is to pinpoint an act of misdemeanor and then judge it, forecast something and predict that in the future something wrong is going to happen because of what was said or done or visible through the records of the company.