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How Forensic Auditing Is Different From Traditional Accounting?

Forensic accounting and auditing go hand in hand. These accountants play the role of an auditor as well as of a private investigator. The forensic accountants need to have the knowledge and skill set that include investigation skills, research, law, quantitative methods, finance, auditing, accounting and law enforcement officer insights. Organizational behavior and applied psychology knowledge are equally essential.

Forensic accountant are employed by the Federal Bureau of Investigation (FBI), Internal Revenue Service (IRS), Federal Trade Commission (FTC), Central Intelligence Agency (CIA), Homeland Security, Bureau of Alcohol, Governmental Accountability Office (GAO) and other government agencies. The key idea is to trace out white collar crime. This requires financial and legal knowledge and expertise.  Forensic accountants play a major role in big companies where everyday million dollar monetary transactions take place. Apart from government agencies, giant employers of forensic accountants include banks and insurance organizations and divorce attorneys. These accountants also testify in civil and criminal court hearings playing the pivotal role of expert witnesses. They gather evidences and present them to the court of law. Forensic accountants do not testify as to whether fraud has occurred or not. There are different organizations that support their work.

Forensic accounting standards originate from courts of law. Financial accounting standards are set by the Securities and Exchange Commission (SEC) for organizations whose securities such as common stock are exchanged on United States (US) stock exchanges, such as the New York Stock Exchange. The SEC assigns much of the financial accounting standard setting process to the Financial Accounting Standards Board (FASB). These accounting standards should not be confused with the accounting laws.

Forensic accounting and auditing demands similar skill set and knowledge as traditional accounting and auditing. However, there are certain differences. Fraudulent scheme investigation comes under Forensic accountant. For identifying fraudulent activities in a company, these accountants use various Forensic accounting techniques. This is different from Certified Public Accountant (CPA) investigations that do not include fraud identification. Forensic accounting investigations include litigation services such as business purchases, valuation of divorce assets, property damage, lost profits due to embezzlement and other illegal acts, tax evasion, and money laundering schemes.

On the other hand, Traditional auditing is all about reviewing others work to find out if they have followed the prescribed policies, procedures and practices. The findings are based on evidence. Traditional auditing is based on facts and not just a matter of opinion. Audits are required by financial intermediaries and the government agencies.