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Unit 14: Forensic Accounting

11. ……………..use their expertise in accounting to determine when illegal transactions and Notes
activity have taken place.

Caselet Case: Forensic Accounting to Prevent White-collar
Frauds: ICAI

ith corporate accounting frauds on the rise, the Institute of Chartered
Accountants of India (ICAI) has decided to promote forensic accounting to
Wequip chartered accountants with adequate tools to detect white-collar crimes
and identify malpractices like money laundering and routing terrorist funds.
Pointing out that it is difficult to detect sophisticated frauds through traditional accounting
methods, ICAI President Ved Jain said, “Forensic accounting will help professionals to
deal with this new problem in the corporate world.”
The emphasis of the ICAI on forensic accounting comes in the backdrop of the US financial
meltdown, caused due to misreading risks involved in complex derivative instruments
by credit rating agencies and other investors.
Similar, the $50 billion fraud by Wall Street trader Bernard Madoff reinforces the need for
a stronger accounting system. Madoff siphoned off billions of dollars through fake bogus
investment schemes.
Forensic accounts, Jain said, “will encompass the use of accounting and auditing skills and
will use computers as an audit tool. Chartered accountants will be trained in forensic
accounting”. Forensic accounting, which includes data mining and fraud detection, will
provide India Inc., private equities and other stakeholders an effective tool to verify the
accounts of companies and present a clear and transparent picture of the financial health of
the entity concerned, Jain said.
Under the current dispensation a chartered accountant is trained to verify and check books
of accounts, he said, adding with the development of new business practices and evolution
of complex company structures, new skill sets are needed to identify accounting frauds.
Welcoming the decision of the ICAI to promote forensic accounting, KPMG Executive
Director Neville M Dumasia said investors are becoming cautious with the rising number
of frauds and PE investors, wanting to invest in companies, are opting for this mode of
auditing to have a true picture of the books of accounts.
Improvement in accounting practices, he added, is the best way to curb white-collar frauds,
like in the case of France-based Societe Generale, and check money laundering, in addition
to keeping a tab on terrorist money flowing into the country.
Grant Thornton’s India head Vinod Chandiok said companies are increasingly looking at
newer methods to scrutinise the books of accounts, a practice that still is in initial stages in
India.
Forensic account, he said, can also help in resolving disputes pertaining to failed joint
venture agreements, ascertaining economic damages and fixing monetary liabilities.
Banks and financial institutions can also adopt forensic accounting to detect internal frauds
and those committed by customers and outsiders, he added.
Source: http://www.business-standard.com

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