Futures and Options Serving Intelligent Investors
What is ‘Forensic Accounting?’
Forensic accounting described as the integration of accounting, auditing and investigative methods to conduct an investigation into a company’s fiscal reports. Forensic accounting provides a financial analysis suitable for court. Forensic accountants are both a finance expert and a professional investigator who trained to look behind the accounting figures and deal with the business reality of a situation. They are frequently used in fraud cases by businesses, law firms, law enforcement agencies, investment companies and insurance agencies.
Alan Zysman, a noted forensic accountant since 1987, states, “Forensic accounting provides an accounting analysis that is suitable to the court which will form the basis for discussion, debate and ultimately dispute resolution”
Forensic Accounting in Trading
In today’s complex financial markets world with very complex financial instruments trading around the globe, investment firms, banks, hedge funds regulatory bodies and exchanges are often victims of financial crimes such as money laundering, employee theft, embezzlement, spoofing, price manipulation and insurance or securities fraud.
Forensic Accounting in trading can help a company investigate price fixations, stock market manipulations and at times even manipulation of the financial figures by the company’s Board to window dress the financial statements and profit and loss account figures to hide real facts from the shareholders and investment community, for the funds misused or misappropriated by the top management.
The real need for Forensic Accounting came in 2001-2002 with huge corporate financial frauds coming to light, like Enron, and World com.The forensic accountant should be well versed with all business and investment laws (MIFID II) at national and international level as financial fraudsters have become more intelligent in their activities exploiting loopholes in the statutes and laws across major financial centers.
The forensic accountant in trading and investments uses all modern techniques and tools in gathering all the data necessary and relevant for his purpose. The various techniques and tools include data mining, finger print identification, order book analysis, laboratory analysis, forged cheques and altered cheques identifying tools, electronic surveillance, email communications etc.
Forensic accounting also requires a great deal of creativity, since one must often explain complex financial concepts (derivatives, forex, cryptocurrencies) to an audience that lacks basicaccounting knowledge. It is not surprising that the American agency, the Federal Bureau of Investigation (FBI)confirmed that ‘one key element was the creation of a standardized, professional investigative support position known as the forensic accountant in 2009’.
Forensic Accounting in trading may be subdivided in four categories:
1.Litigation support
2.Investigative and assisting in the disputes
3.Frauds Detection and finally
4.Forensic Data analysis
The litigation support is provided to lawyers by giving support of documentary evidence to support or rebut a claim. Also assisting in designing relevant questions to be asked at the time of trial in courts of law.
Under the second category the Forensic Accountant helps in minimizing future damages and risk of loss. Because of their financial expert knowledge he is effectively used in fraud detection.
Today Forensic Accountants have become part of all major accounting firms, and all big investment companies such as banks, mutual funds, hedge funds, brokers specializing in fraud detection and prevention and helping the courts of law by giving evidence of the financial crime. Courts depend on the expertise of forensic accountants in all financial litigations and disputes.
The important skills needed for the role of a Forensic Accountants includes:
They should understand the business and the technology used in the organizations, the software used, as he is dealing with the management as well the technical and software departments of the company.
Should have sound technical knowledge to get the source of required information from the storage and other computer equipment’s and for following the trial of information needed for investigation.
Forensic Accounting in trading role not only includes unearthing a fraud but also to find out why the fraud occurred.
Helpful Resources
