Forensic accounting is a branch of accounting that focuses on investigating business and financial records to determine if fraud, money laundering, or other crime has occurred. “Forensic” means “belonging to or suitable to use in a court of law”, which is why forensic accountants strive to produce findings that can be used in court. These professionals are also called on to give evidence during trials.
Forensic accounting offers several benefits at first glance but, if you look closer, you’ll see that it also has its drawbacks. Read on to learn more about the advantages and disadvantages of this practice area.
List of Advantages of Forensic Accounting
1. It helps solve financial crimes.
As mentioned above, forensic accounting can greatly help in solving financial crimes. These can involve bribery within government offices as well as fraud and money laundering within business organizations. Forensic accounting not only helps with gathering evidence for crimes but can also be used in detecting and identifying crimes.
2. It helps monitor professionals.
Forensic accounting can be used to assess the work of professionals, including accountants themselves. The findings from this assessment, in turn, can be used to file professional negligence claims against those who have been proven to have made critical errors (whether intentionally or not).
3. It helps businesses with their finances.
Businesses can use forensic accounting to detect anomalies among their staff and with third parties they’re working with. For instance, a company can ask a forensic accountant to check an employee’s purchasing records to see if all of his purchases were for business use or if he diverted some for his personal use.
List of Disadvantages of Forensic Accounting
1. It takes a lot of time.
Forensic accounting is never easy. It requires accountants to go through every piece of document to ensure that their investigation is complete and that they’ll uncover every evidence that will solve the case. This can take many days and can even stretch to many weeks or months, depending on the magnitude of the case, the size of the organization involved, and the number of documents to review.
2. It can be expensive.
Because of the lengthy period of time needed, forensic accounting can turn out to be expensive. This isn’t a problem for huge corporations that have more than enough funds, but it can be an issue for smaller businesses that have limited budgets.
3. It can be distracting.
Forensic accounting can cause a distraction among employees, particularly when outside accountants are brought in. The process can disrupt the staff’s normal routine and cause their productivity and efficiency to suffer.
4. It can affect employee morale.
Forensic accounting can cause employees to feel like their integrity is doubted, which can lead to lower staff morale. It’s the responsibility of managers and business owners to make their people understand that forensic accounting is done not as a sign of distrust but as a way to improve business efficiency.
These are some of the advantages and disadvantages of forensic accounting. Weigh these first to know whether you’d get forensic accounting services or not.