Although its origin is not yet clear, it is considered that forensic accounting can be so old that it was born in 1692 BC in ancient Mesopotamia. The Code of Hammurabi of Babylon (1692 BC in ancient Mesopotamia), the first legal document known to man, in some of its fragments implies the basic concept of forensic accounting: to prove fraud or a lie with accounting documentation.
However, it is argued that forensic accounting as we know it today was born when Frank Wilson was investigating the secret dealings of Al Capone in 1930. Al Capone was one of America’s most infamous Chicago gangsters, dedicated to criminal practices and money laundering. Wilson found a large amount of evidence, including the payment book, with which it was possible to verify that the sales volume exceeded the theoretical capacity of the business. In fact, the actual sales volume and the declared sales volume were totally different. With this, the prosecution was able to demonstrate fraud in the payment of taxes by Al Capone, and thus dismantle this organization.
Here, experts from the forensic accountant firm, Studler Doyle explain more about forensic accounting.
Forensic accounting definition
Studler Doyle experts define forensic accounting as a science that allows the gathering and presentation of accounting, financial, legal, and administrative information, which provides an accounting analysis that will be accepted by the court. This analysis will be a part of the debate and, finally, the judgment of the guilty parties of a financial crime. It is also a specialized discipline that requires expert knowledge of accounting theories, auditing, and criminal investigation techniques. Studler Doyle experts indicate that forensic accounting is an important branch of investigative accounting, used in the reconstruction of financial events, fraud investigations, calculations of economic damages, and returns on financial projections.
When significant financial frauds are detected in the execution of audit tasks (financial, management, IT, tax, environmental or governmental), and it is necessary (mandatory) or desired (optional) to delve into them, a process called forensic audit is used. Studler Doyle forensic accountants indicate in their articles on Reedsy that research will be mandatory depending on:
- The type of fraud
- The environment in which it was committed
- Applicable law.
As the forensic accountants from Studler Doyle further explain, a forensic audit involves, at a minimum: analysis, loss quantification, investigation, collection of evidence, mediation, arbitration, and testimony of a witness.
Causes and origin
The relationship between accounting and auditing terms with forensics becomes closer when speaking of criminal evidence. Therefore, Studler Doyle experts claim that it is defined, as an audit specialized in discovering fraud and crimes in the development of public and private functions.
It also studies the consequences of events that may or may not be criminal, to provide the judge with evidence. The evidence may involve accounting records and particularly technical scientific evidence, which are of utmost importance in the current time of full scientific development in a judicial investigation.
Studler Doyle is a forensic accounting firm with broad background and experience, specializing in fidelity and other insurance claims.
Studler Doyle is a leader provider of crime and fidelity investigation, and accounting education to its clients.