Necessary Skills, Educational, and Training Requirements for Forensic Accountants investigative services


Fraudulent financial reporting scandals like Adelphia Communications, Enron, WorldCom, Ex-Tyco, Lehman Brothers, Washington Mutual, the collapse of one of the Big Five Accounting firm, and the domino effect of Wall Street meltdown of the financial institutions, have continued to tarnish American business practices. Corporate collapses like these and many others brings to mind the loss of individuals retirement savings, as a results of relying on faulty financial statements that provided by large corporate giants indicating that their investments were safe and because of the white-collar greed. In the wake of these exposed financial scandals and the public awareness of fraud and fraudulent financial reporting, tax evasions, white-collar crimes and the concern over money laundering associated with drug trafficking to support the 9/11 terrorist attack on the World Trade Center in New York. All of these events have heightened public awareness and demanded quick and immediate solutions to these corrupt individuals. The U.S. Congress had enacted into law the Sarbanes-Oxley Act of 2002, which was widely considered the most significant accounting legislation since 1933, to fight corrupt executives and to strengthen internal control. Hence, it play an imperative role in prevention, detection and deterrence of fraud and fraudulent acts and to encourage financial statement auditors to be more aggressive in searching for fraud and investigating and to challenge accounting professions to conduct a rigorous fraud risk assessments to mitigate its occurrence. and has also brought about to the greater need for the due diligence engagements that include forensic accounting and forensic financial accountant, that have thrived after these disastrous scandals and has prompted the Associations of Certified Fraud Examiners, as well as educational institution to strengthen forensic accounting core curriculum to be able to face the challenges of deceitful executives and to combat the increase in the demand for qualified professionals with education, training, and experience in fraud and financial forensics has increased. The FBI had increased its funding of its criminal divisions that it hired twice as many forensic accountants today than it did a decade ago (Hopwood 2008).

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Furthermore, the American Institute of Certified Public Accountants (AICPA) and the Association of Certified Financial Examiners (CFE); also called anti-fraud organization, joined hands to combat corporate abuses and fraudulent acts by corporate executives, and have issued a new CPA specialty credential in forensic accounting called Certified Financial Forensic CFF (AICPA, 2008).

Forensic Accounting is the use of investigative and analytical skills of intelligence-gathering methods and accounting skills for the purpose of resolving financial issues in a manner that meets standard required by courts of law (Hopwood, 2008). In short, "forensic accounting is any accounting work done in anticipation of litigation" (wells, 2002). It can cover the determination of value of a business, the scrutinization of financial activities and reporting of any fraudulent acts, attestation to, documentation, analyzing, pinpoint past and present financial or other accounting data for the purpose of resolve civil or criminal legal proceedings.

Recent corporate accounting scandals have led to increased legal and regulatory requirements, the increases in occupational fraud; and the heightened concerns over money laundering to support terrorism and racketeering, have let to the increase in the demand for professionals who have specialized qualifications in fraud and financial forensics. The Wall Street Journal stated that "forensic accounting is a particularly hot field" (CPA Recruitment Intensifies as Accounting Rules Evolve, March 22, 2005), (Kranacher, 2010). Moreover, each of the Big 4 firms is now recruiting accounting students with some exposure to financial forensics. The need for competent forensic staffing at the SEC, IRS, DOJ, PCAOB, and in private industry is outpacing over the next ten years to more than double. Kellogg goes on to suggest that it is hard to envision a more stable and in-demand career.

According to Fraud Examiners manuals (CFE study guide, CFE exams), Forensic accounting educations include fundamentals of fraud, financial statements fraud, types of fraud, cooking the books and problems in accounting, anti-fraud controls, internal control evaluations, fraud detection litigation and investigation, valuations and complex transaction issues. Forensic accountants need to have broader skills in accounting, auditing, finance, quantitative methods, certain areas of law and investigative skills. It is a type of private investigator with a strong knowledge of professional standards in accounting and law, and communications sills, as well as the educational requirements.

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Each trait listed hereunder is perceived by their importance of the forensic accounting (AICPA FVS, 2008).

Pre-requisite knowledge obtained and of their degree requirements.

Basic Accounting Skills: Accounting profession is regarded as a language of business, it is imperative that forensic accountant should have a strong knowledge of Basic accounting skills, consists of basic financial statements and note disclosures, the effects of debits and credits on account balances, account analysis, computational of key financial ratios, common size financials, basic auditing concepts, knowledgeable of relevant auditing standards, professional and regulatory bodies, basics of transaction processing cycles of internal controls, including computer-based information system controls, basics of business law, basic computer skills, and most importantly, professional skepticisms (Albrecht 2008).

Verbal and written communication skills: General business communication skills (oral and written); often are called to present evidence to the court in comprehensible fashion, as well as business ethics. A good communicator knows how hard to push for evidence and confession and how the questioned and interviews are coordinated to make them most constructive (Albrecht 2008).

Analytical Skills - it can be categorized into two group, data extraction analysis and forensic financial analysis- data mining. Forensic financial analysis is about the analysis of data for relationship that can be used to reveal unusual relationship or not previously discovered that must be examined further. Data mining is used as pro-active fraud detection as well as after the fact analysis (Sheetz 2007). On the other hands, Data extraction analysis is used to perform data mining on a company's database records such as billing, accounts receivable, vendor payments, payroll, and purchasing. If this analysis yields any unusual results or discrepancies, they are further investigated. Had its auditors properly applied correlation analysis or analytical procedures in HealthSouth corporation, Price water- house Coopers could have detected the abusive of earnings management. HealthSouth acknowledged that "the forensic audit discovered at least another $1.3 billion dollars in suspect financial reporting (CPA Journal, 2004). According to the AICPA analytical characteristic is the "Inquisitive" trait and the "Persistent" trait for the forensic accountant and are " are critical to the forensic accountant's ability to provide value-added services in engagements calling for more than simply auditing skills and problem-solving abilities". (AICPA FVS section).

Prior audit experience - Forensic accountant must have at least 1-2 years of

Auditing skills experience plus some fraud related investigation and detection experience preferably working with for a law enforcement agency, because it plays a decisive role in forensic accounting (Albrecht 2008).

Benford's Law & Data mining skills: Techniques and methodologies for discovering fraud in corporate databases. However, one of the techniques used in forensic accounting is the Benford's law. Its objective is to determine whether the field under study is free from any unintentional errors or frauds. Benford' techniques can be used as a signaling device to identify accounts more likely to involve fraud, and to assist auditors in their search to detect fraud in financial statements by analyzing the distributions of digits in natural follows a predictable pattern. Thus, digital analysis can enhance the auditor's ability to detect fraud (Durtish, Hillison & Pacini, 2004).

Technology forensic skills: Today's' technology allows the fraud examiners to analyze huge database quickly. Computers and digital documents provide the best evidence about whether someone is guilty of fraud (Albrecht 2008).

Background in criminal justice/law enforcement: undertaking fraud issues and investigation always involving legal questions. The collapse of infamous names in the corporate world, the Sarbanes-Oxley Act legislation in preventing another financial meltdown, tax evasion based on incorrect tax filling, 9/11 terrorist attack in New York, and money laundering, have been the major concern for the U.S. government, and forensic accounting have been proven an essential and important tools in the investigation, prosecution and conviction of individuals and major corporations of guilt's (Albrecht 2008). FBI, IRS, and Secret Service have a large number of agents who are CPAs (Kranacher, 2010).

Investigative ability: "Think like the wrongdoer," "Understand the goals of the case," "Tell the story" and "See the big picture" are fundamental skills important in forensic accounting (AICPA). It is a science of using accounting tools to investigate, identify and proof the flow of money (Albrecht 2008).

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Interviewing skills: forensic accountant's interviewing skills is important as a means of obtaining pertinent information for a case. It is skill that is obtain through the years of determining whether the individuals in being deceiving Albrecht 2008).

Professional designations: a key component in getting accepted or hired by accounting firms if and individuals have earned the Certified Fraud Examiner credentials (CFE). More and more of forensic accountant are being used in divorce engagements and lawyers will only hire CPA's who are (CFE). "Going into battle without the armor of training and credentials would be suicide," Woods stresses (Stimpson, 2005).

Forensic accounting would always involve investigation and its mission is to respond to the fraud questions: who was involved in the deception and how fraud was committed? Was it employees or the corporations? What will be the economic damages resulting from these deceptions or fraud committed? And very often, the forensic accountant testifies in courts to answer those questions. Thus, the demand for forensic accountant is so high these days and for the need for computer forensic skills are in demand as well (Hopwood 2008).

According to the AICPA FVS section 2009, of the importance of the essentials traits and characteristics for forensic accountants, ranked in terms of its importance, from highest to lowest are:

Analytical procedures

Basic accounting skills,

Problem solving skills,

Data analysis skills,

Interviewing skills,

Verbal communication skills,

Basic computer skills,

Technical accounting skills,

Reporting skills,

Computer forensic skills,

Public speaking skills,

Knowledge of U.S. criminal law,

Knowledge of U.S. civil law,

Business valuation skills,

Experience with Benford's law,

Knowledge of U.S. tax code (AICPA, FVS section, 2009).

The importance of core skills is the communication skills are essentials core keys to the effectiveness of the forensic accountant are:

Critical/strategic thinker

Effective written communicator

Effective oral communicator

Investigative ability

Auditing skills

Investigative intuitiveness

Synthesize results of discovery and analysis

Identify key issues

Understand the goals of a case

Solve unstructured & structured problems (AICPA, FVS section, 2009).

Enhance skills carries a lot of weight for specific skills currently being requested for forensic accountants are:

Analyze and interpret financial statements and information


Knowledge of relevant professional standards

Audit evidence

Fraud detection

Asset tracing

Electronic discovery

General knowledge of rules of evidence and civil procedure

Interviewing skills

Possess specialized technical skills

Internal controls

Conflict negotiation and resolution

Knowledge of law enforcement (AICPA, FVS section, 2009).

ACFE estimates that occupational fraud costs to U.S. employers is more

than one trillion dollars annually.

It is crucial to eliminating employee theft and fraud in the corporate surroundings. Fraudulent behavior acts by corporate executives must be prevented and should be prosecuted to the full extent of the law, and must be convicted of the violation of rules and regulations. Therefore, ensuring the accuracy and the reliability of the company's financial reporting is exceptionally important in the democratic economy. And I believe that corrupt individuals, government officials and organizations should be held responsible for their dishonest accounting practices and theft of funds that have left millions of people without their pension. Certified Financial Examiners (CFE) or forensic accounting had proven essential in the investigation, prosecution and conviction of major executives of major corporations and exposing corrupt organizations of its illegal activities, and investigate illegal source of money laundering to prevent another meltdown of the economy.

The demand for forensic accountants goes up as white-collar crime increases, and federal regulations are tightened. Forensic accounting expertise with core knowledge of accounting, auditing, investigating skills that can be applied to bankruptcy and insolvency, computer forensics, economic damages, fraud investigations, litigation support, stakeholder disputes and business valuations.

Joseph T. Wells is the founder of the National Association of Certified

Fraud Examiners (NACFE) states that "there is a need to marry the auditor with the investigator."

Al Capone, the Infamous mobster career's ended when special agents of the IRS stepped in and charged him with tax evasion, and not by the Criminal Division of the FBI.

The IRS has an advertising poster with a picture of Alphonse Capone. The poster states: