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Forensic accounting

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Forensic accounting
Forensic accounting is the specialty practice area of accountancy that describes
engagements that result from actual or anticipated disputes or litigation. "Forensic"
means "suitable for use in a court of law", and it is to that standard and potential outcome
that forensic accountants generally have to work. Forensic accountants, also referred to as
forensic auditors or investigative auditors, often have to give expert evidence at the
eventual trial.
[1]
All of the larger accounting firms, as well as many medium-sized and
boutique firms, have specialist forensic accounting departments. Within these groups,
there may be further sub-specializations: some forensic accountants may, for example,
just specialize in insurance claims, personal injury claims, fraud, construction,
[2]
or
royalty audits.
[3]
Engagements relating to civil disputes may fall into several categories: calculating and
quantifying losses and economic damages, whether suffered through tort or breach of
contract; disagreements relating to company acquisitionsperhaps earn outs or breaches
of warranties; and business valuation. Forensic accountants often assist in professional
negligence claims where they are assessing and commenting on the work of other
professionals.
Forensic accountants are also engaged in marital and family law of analyzing lifestyle for
spousal support purposes, determining income available for child support and equitable
distribution.
Engagements relating to criminal matters typically arise in the aftermath of fraud. They
frequently involve the assessment of accounting systems and accounts presentationin
essence assessing if the numbers reflect reality.
Some forensic accountants specialize in forensic analytics which is the procurement and
analysis of electronic data to reconstruct, detect, or otherwise support a claim of financial
fraud. The main steps in forensic analytics are (a) data collection, (b) data preparation, (c)
data analysis, and (d) reporting. For example, forensic analytics may be used to review an
employee's purchasing card activity to assess whether any of the purchases were diverted
or divertible for personal use.
The General Ledger
The general ledger is a collection of the firm's accounts. While the general journal is
organized as a chronological record of transactions, the ledger is organized by account. In
casual use the accounts of the general ledger often take the form of simple two-column T-
accounts. In the formal records of the company they may contain a third or fourth column
to display the account balance after each posting.

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To illustrate the posting of transactions in the general ledger, consider the following
transactions taken from the example on general journal entries:
Date
Account Names
Debit
Credit
9/1
Cash
7500
Capital
7500
9/8
Bike parts
2500
Accounts payable
2500
9/15
Expenses
1000
Cash
1000
9/17
Cash
400
Accounts Receivable
700
Revenue
1100
9/18
Expenses
275
Bike parts
275
9/25
Cash
425
Accounts receivable
425
9/28
Accounts payable
500
Cash
500
The above journal entries affect a total of seven different accounts and would be posted
to the T-accounts of the general ledger as follows:
General Ledger
(T-Accounts)
Cash
Sep
1
7500
17
400
25
425
Sep
15
1000
28
500
Accounts Receivable
Sep
17
700
Sep
25
425
Bike Parts
Accounts Payable

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Forensic accounting Forensic accounting is the specialty practice area of accountancy that describes engagements that result from actual or anticipated disputes or litigation. "Forensic" means "suitable for use in a court of law", and it is to that standard and potential outcome that forensic accountants generally have to work. Forensic accountants, also referred to as forensic auditors or investigative auditors, often have to give expert evidence at the eventual trial.[1] All of the larger accounting firms, as well as many medium-sized and boutique firms, have specialist forensic accounting departments. Within these groups, there may be further sub-specializations: some forensic accountants may, for example, just specialize in insurance claims, personal injury claims, fraud, construction,[2] or royalty audits.[3] Engagements relating to civil disputes may fall into several categories: calculating and quantifying losses and economic damages, whether suffered through tort or breach of contract; disagreements relating to company acquisitions—perhaps earn outs or breaches of warranties; and business valuation. Forensic accountants often assist in professional negligence claims where they are assessing and commenting on the work of other professionals. Forensic accountants are also engaged in marital and family law of analyzing lifestyle for spousal support purposes, determining income available for child support and equitable distribution. Engagements relating to criminal m ...
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