Have you heard of the Ponzi Scheme Fraud?
Or do your ears ever get to hear Enron Scandal, Tyco International Scandal, or Bernie Madoff Fraud?
The world has known business, money, finance, investment, and profit for centuries. It also knows the word fraud, embezzlement, financial scandal, economic losses, financial disputes, etc., since then.
But all of this has to do with the forensic accountant or forensic accounting?
Forensic accounting as a field has developed for catching financial robbers, financial embezzlement, and financial fraudsters. A business organization generally loses around 5% of its revenue every year in cash fraud and financial embezzlement.
10% of all forensic accounting frauds reported in a year are those of financial statement frauds. Therefore, forensic accounting and forensic accountants have become inevitable for the existence and profitability of economies and businesses.
In this blog, we’re going to talk about the emerging career of a forensic accountant. What to expect while choosing it as a career path will also be discussed.
What Is Forensic Accounting? Origin And Application
Many people view forensic accounting as a contemporary field of accounting. However, forensic accounting can be anything but new. The roots of forensic accounting are as old as from the 16th century. However, forensic accounting wasn’t formally defined until the 1930s.
Frank Wilson introduced it to the modern age in the 1930s when he unleashed the illicit and gambling money of famous gangster Al Capone. Frank Wilson was working as a CPA for the US Internal Revenue Service.
With due diligence, Wilson identified around $215,080.48, which Al Capone owed to the Federal Government. As a result, he was sentenced to 10 years of imprisonment for tax evasion and illegal activities like gambling.
From thereon, the informal journey of forensic accounting started for the modern age until it was formally defined in the 1940s. The term ‘Forensic Accounting’ was coined by a CPA, Maurice Peloubet, in 1946.
The formal definition of forensic accounting can be collected as,
It is a special practice area of accounting where the forensic accountant or fraud investigator investigates the financial reporting misconducts, frauds, risk assessment, embezzlements, and a lot more.
The scope of forensic accounting is very broad. Sometimes the investigation can be extended to the general collection of data for evidence. The focus is more on accounting issues, but a forensic accountant must be knowledgeable about the common statutory law of the state or country.
In other words, a forensic accountant is inquiring about suspicions of accounting fraud. Forensic accounting is a multi-disciplinary approach involving criminology, accounting, litigation services, and investigative auditing.
Who Is A Forensic Accountant?
If forensic accounting is investigation and identification of fraud suspicion in financial reporting, the forensic accountant is the individual performing the job.
Is forensic accountant only who is investigating financial reporting misconduct?
Let’s redefine forensic accountant.
A forensic accountant has investigative skills and authority to identify any inaccuracy in the company’s financial statements in case of a legal dispute. The term forensic refers to ‘suitable for a court of law.’
From this meaning, we can derive the definition of a forensic accountant as a professional giving service in fraud investigations, breach of contract disputes, and other disagreements leading to court action.
The job description of a forensic accountant is very vast. The duties he is supposed to perform in any investigation or case might include but are not limited to:
- Assessment of losses and suspected damage awards
- Application of financial accounting practices to assess financial statements
- Research and report writing
- Application of tax law knowledge for assessment
- Providing courtroom testimony in some cases and litigation support for trial evidence
- Assisting in the external investigation
- In some cases, work closely with law enforcement agencies and anti-corruption officers
- Also works independently
- In some instances, the audit of internal and external financial documents of a business
- A risk assessment by careful investigation of financial data and reports
- Ensuring compliance with financial reporting standards
How Much Does A Forensic Accountant Make?
Before pursuing a forensic accounting career, the most important concern of any accounting professional is: Will I be able to make decent earnings in this career path?
It is important to answer how much does a forensic accountant make?
So here’s the answer to this hot question.
According to a report from Maryville University, when an accountant earns his certified fraud examination designation, he is able to make $155,000 per year.
Without the certification, he can earn a decent amount of $71,000 annually in the US. That means a 100% rise in the income once getting a certified forensic accountant.
Another publication of the US Bureau of Labor Statistics reports salaries for accountants in general and forensic science technicians. We can estimate the average salary of an auditor or accountant from these figures as follow:
- Median Annual Salary: $70,500 ($33.89/hour)
- Top 10% Annual Salary: $122,840 ($59.05/hour)
- Bottom 10% Annual Salary: $43,650 ($20.98/hour)
According to the Federal Bureau of Investigation(FBI), they pay an average of $89,601 to their forensic accountants annually.
Now let’s come to the career path or education pursuance leading to the forensic accounting career.
A few universities are offering dedicated bachelor’s degrees in forensic accounting. However, anyone looking to pursue a forensic accounting career must have a minimum of his bachelor’s in accounting or finance.
After high school, get enrolled in an accounting or finance program. Take your majors that are more related to audit, fraud examination, and investigative accounting.
The individual pursuing a forensic accounting career can also consider studying criminal justice as a minor subject in the undergrad or graduate programs.
Irrespective of your majors, you will be required to complete your 150 credit hours of accounting for appearing in the CPA exam. Once you get through it, you can choose your future career path as either an auditor, fraud examiner, or forensic accountant.
The next step is to get certified for forensic accounting.
Certification & Training
You will be surprised to find that most Forensic accountants are CPA holders. Besides, you need to be a Certified Public Accountant for pursuing an accounting designation in any business organization.
Therefore, you can start your career path in financial forensics once getting a CPA certification.
Based on your interest, you can opt to become a certified fraud examiner or certified forensic accountant.
For fraud examiner certification, ACFE (Association of Certified Fraud Examiners) offers a CFE(Certified Fraud Examiner) certification to practicing accountants.
You must be a member of ACFE to appear in the examination. It is a good independent career path any accounting professional can opt for.
Otherwise, you can earn a dedicated forensic accounting certification too.
CPA is a minimum requirement for becoming a forensic accountant. The American Institute Of Certified Public Accountants(AICPA), the national organization for CPAs, also offers a certification CFF(Certified Financial Forensics).
The requirements to be eligible for taking the exam for CFF are:
- Must be a CPA accountant and a member of AICPA
- The individual must have 5 years of experience as a practicing accountant
- Must satisfy the business experience and continuing education requirements
Other certifications forensic accountants can opt for include:
- Certified Valuation Analyst(CVA) or Accredited Valuation Analyst(AVA) offered by AICPA
- Certified Fraud Examiner(CFE) offered by ACFE
- FCPA(Forensic Certified Public Accountant) offered by the Forensic CPA Society
- National Association of Forensic Accountants(NAFA) training for forensic accounting
Industries Where You Can Make Your Career As A Forensic Accountant
Different business organizations and government agencies open positions for forensic accountants. You’ll most commonly see forensic accountants working for law enforcement agencies like the FBI(Federal Bureau Of Investigation), IRS(Internal Revenue Service), and other federal agencies.
However, the scope of forensic accountants is not limited to these industries. There are many other business situations and organizations that only a forensic accountant can rescue.
Here are some of the most prominent industries where a forensic accountant can try his luck for a career path:
- Law Firms
- Federal Law Enforcement Agencies
- Insurance Agencies
- Brokerage Firms
- Banks, Financial Institutions
- Corporate Security
- Auditing Firms
- Risk management departments
- Independent career as an accounting consultant
- Tax Professionals
Fraud Accountant Vs. Forensic Auditor
Many people often confuse the concept of a forensic accountant and forensic auditor—the main primary difference between the two lies in the purpose of the audit.
Here are the two distinguishing points between the two types of professions under discussion.
- Frauds For Business: A forensic auditor generally deals with frauds for business. These frauds are usually conducted by the company’s promoters, shareholders, or boards of directors for misleading third parties about the financial position and health of the business.
- Frauds Against Business: A forensic accountant is a professional looking into frauds against businesses. Frauds against business are mostly conducted by the company’s employees, clients, or suppliers: these kinds of frauds and embezzlement damage the business operations, profits, or any other damage.
Suppose you’re looking to follow a career path as a forensic accountant. In that case, this blog is equipped with all the necessary information, educational and certification requirements, and industries you can venture into.
We recommend pursuing a forensic accounting career than a public accountant because it’s in demand and is more technical with a broader scope.