Forensic Accounting 

Introduction 

Forensic Accounting or Forensic Auditing or Financial Forensic is the speciality practise area of accounting that describes engagements that result form actual or anticipated disputes or litigation.
In simple terms forensic accounting means the use of accounting skills to investigate into frauds or embezzlement and to analyse financial information for use in legal proceedings.
It involves use of analytical and investigative skills  to resolve financial issues.

Need of Forensic Accounting

With the passage of time and massive development in financial world and with the added complication of Technology the method of committing fraud has evolved massively in comparison to traditional ways of committing frauds. with so many commercial laws to govern economic transactions, one can easily overlook any particular legal compliance or finding a loophole in such laws using it for evasion purposes. The traditional way of auditing and fraud detection mechanism desperately needed a specialised , sophisticated and technical concept. hence the concept of Forensic Accounting emerged.
Financial Frauds are burning issue in the financial world today. whether it's the Enron Bankruptcy 2001, The World Com Scam 2002, The Madoff Pyramid 2008, The Great Recession 2008 or PNB Scam, and so many other bank frauds etc, the stake at risk were so massive that they shock not only the particular industry but the entire economy from it's roots. Millions of lives were directly affected in one way or another. This is why forensic accounting has grabbed so much attention now a days. The need for Forensic Accounting has been increasing rapidly due to fraud, financial crimes and money laundering.

Areas where Forensic Accounting can be applied

. Criminal & Civil Investigation
. Providing evidences in Court
. Insolvency & Litigation support Investigation
. Breach of Contracts
. Fraud detection/ prevention
. Insurance claims, warranty claims
. Regulatory Enquiries
. Business Valuations
. Divorce cases and matrimonial disputes settlement
. Arbitration
. Expert witness cases

Skills and Characteristics that a Forensic Auditor supposed to possess.

I. Core Skills
-Ability to critically analyse the financial statements. It helps auditors to analyse unusual pattern.

-Ability to understand and analyse the internal controls.

-Proficiency in Information Technology and Computer Network.

-Knowledge of Psychology to understand the thinking and motive behind the criminal behaviour and also to motivate and encourage employees. It is necessary to understand peoples psychology because people commit fraud and crimes underlined by many factors like financial problem, pressure, attitude of the employee, motivation etc.

-Through insight and knowledge into entity's governance policies and laws governing them.

- In depth understanding of fraud schemes like misappropriation, money laundering, bribery and corruption.

- Knowledge of relevant laws like commercial laws, taxation laws etc.
- Inter personnel and communication skills.

 
II. Non Core Skills
- Sound professional judgement
- Look beyond numbers and focus on substance of the situation.
- Do not overlook the details coz devils are in the details.
- Curiosity, persistence and creativity.
- Investigative skills

Process/ Steps in Forensic Auditing

1. Accepting and Initialising the audit
2. Develop The Plan for the audit
3. Gathering evidences
4. Analysing evidences
    While analysing following methods can be used
          i.   Substantive Techniques- like review of documents and                      records, doing reconciliation
          ii.  Analytical Procedure- it involves comparison of trends,                      financial ratios etc
          iii. Application of Computer Assisted Techniques
          iv.  Interviewing and Observation
5. Reporting
6. Court Proceedings

 Forensic Accounting in Nepal
 With the development of financial world crime, fraud and corruption, context of Nepal is no different. The instances and value of financial fraud and corruption has been ever increasing. Level of corruption is so massive that the entire country's economy has been adversely affected. The inefficient government policy and further more inefficient regulatory and control mechanism has further made the country vulnerable. Corruption has been institutionalised and no measures for check and balance whatsoever.
So it would not be fallacious, even a bit, to say that the need for Forensic Accounting in Nepal is utmost in the present days.
In a nutshell frauds in Nepal can be categorised in 3 types- 1. Financial Statement Frauds 2. Misappropriation of Assets 3. Corruption
The young accountants of the country need to draw their focus in Forensic Accounting because of it's increasing importance in Nepal and the fact that the existing number of professional in the filed of Forensic Accounting is trivial.