Forensic accounting and fraud examination are different but related. Forensic accounting work is done by accountants in anticipation of litigation and can include fraud, valuation, bankruptcy and a host of other professional services. Fraud examinations can be conducted by either accountants or non-accountants and refer only to antifraud matters.
Again, forensic accounting is an accounting specialty that integrates accounting, auditing, and investigative skills in order to support or resolve allegations of fraud. Forensic Accounting encompasses both litigation support (expert witness testimony, presentation of supporting documents showing fraud, etc.) and investigative accounting.
The difference between a "normal" accountant and a forensic accountant is that the latter seeks a level of evidentiary detail and analytical precision, which will be sustainable with legal scrutiny or review.
Forensic Accounting focuses on both the evidence of economic transactions and reporting, and the legal framework that allows such evidence to be suitable for establishing accountability and/or valuation. Forensic Accounting engagements include transaction reconstruction; bankruptcy; family law issues; asset identification and valuation; fraud examination/detection; and many other issues.
Auditing is performed either by an employee (internal audit) or by an outside accounting firm (external audit). Internal audits examine operational evidence to ensure that the prescribed company operating procedures have been followed. External audits examine the assets and records of a company, leading to the expression of a professional opinion by the outside CPA, which gives credibility to the financial reports presented by the company. A key component of an audit is the review of internal control weaknesses. Fraud examination differs from auditing as shown in Exhibit 1:
Auditing vs. Fraud Examination
Issue | Auditing | Fraud examination |
Timing | Recurring Audits are conducted on a regular, recurring basis. | Nonrecurring Fraud examinations are nonrecurring. They are conducted only with sufficient predication. |
Scope | General The scope of the audit is an examination of financial data. | Specific The fraud examination is conducted to resolve specific allegations. |
Objective | Opinion An audit is generally conducted for the purpose of expressing an opinion on the financial statements or related information. | Affix blame The fraud examination`s goal is to determine whether fraud has occurred or is occurring and to determine who is responsible. |
Relationship | Nonadversarial The audit process is nonadversarial in nature. | Adversarial Fraud examinations, because they involve efforts to affix blame, are adversarial in nature. |
Methodology | Audit techniques Audits are conducted by examining financial data and obtaining corroborating evidence. | Fraud examination techniques Fraud examinations are conducted by (1) document examination; (2) review of outside data such as public records; and (3) interviews. |
Standard | Professional skepticism Auditors are required to approach audits with professional skepticism. | Proof Fraud examiners approach the resolution of a fraud by attempting to establish sufficient proof to support or refute a fraud allegation. |
Source: Fraud Examiners Manual, Association of Certified Fraud Examiners
