Abstract
The necessity for forensic accounting has grown with the increased incidents of financial fraud. This is not unrelated to the inability of statutory audit to discover and prevent fraudulent acts. This chapter provides discussions on the need and prospects of forensic accounting in developing countries as it may address the prevalence of business failures and financial crimes resulting from audit failure and the growth of creative accounting. Although the chapter provides a general overview for developing countries, there is a specific focus on Nigeria, a developing country characterized by high level of corruption. The findings show that the use of forensic accounting is still at a very low level owing to the high cost of forensic accounting tools and the time and money involved in acquiring the requisite skills. The chapter recommends that forensic accountants nonetheless are suitable to eliminate economic crimes and corruption to improve growth in the economy in developing countries.
TopIntroduction
Forensic accounting is a branch of the accounting profession that deals with engagements emerging from or connected to actual or prospective litigation or disputes. The word forensic implies suitable for use in a court of law and forensic accountants must typically work to that standard and possible resolution (Crumbley, Heitger, & Smith, 2005). Forensic accounting is a form of accounting that is acceptable for legal examination and gives the greatest degree of credibility (Apostolou, Hassell, & Webber, 2000). Specifically, forensic accounting is the use of financial skills and investigative attitude to unresolved matters, undertaken within the framework of the norms of evidence (Arokiasamy & Cristal, 2009).
The rising need for forensic accounting is widely acknowledged. The burning need for forensic accounting stems from the prevalence and consequence of fraud and blunders. In developing nations, especially in Nigeria, forensic accounting is still very recent and in its embryonic stages as organizations have just begun to discover the necessity of forensic accountants in combating the growing number of fraud cases. According to Bologna and Lindquist (1987), forensic accounting comprises fraud knowledge, financial skill, and a thorough awareness of corporate realities and the legal system's operation. Therefore, one of the most effective and efficient ways to reduce and check accounting fraud is through forensic accounting. Consequently, forensic accounting is now gaining popularity across the globe and is being introduced to curriculums at educational institutions across the world.
As a result of the recent spates of company failures, forensic accountants now have a larger responsibility to equip themselves with the abilities to recognize and act on signs of weak governance, mismanagement, frauds, and other wrongdoings. Professional forensic accountants must be well-versed in the strategies for recognizing, finding, and preserving the evidence of all types of financial misdeeds. Though accounting processes have vastly improved, contemporary electronic scams have grown so intricate and sophisticated that they may go unnoticed (Joshi, 2008). This necessitates figuring out how to overcome new obstacles to match the capabilities of financial crime. The inability of statutory audit to identify, prevent, and decrease corporate fraud and embezzlement, as well as the rise in corporate crime, has placed pressure on forensic accounting professionals and legal practitioners to devise a better method of exposing fraud in the business sector. As a result, this chapter examines the notion and necessity for forensic accounting, as well as the effects of financial corruption and crime on the economy in a developing country.
Key Terms in this Chapter
Forensic Accountant: A forensic accountant is a skilled professional that investigates incidences of financial related crimes such as fraud, bribery, embezzlement, and money laundering.
Litigation: The process of taking legal action or filing a lawsuit.
Investigation: The process of making a formal inquiry into an event, a person, or a company usually in a bid to uncover missing details.
Financial Statement: This is a statement of record showing the financial status of a company over a given period of time, usually a year. It will usually include a statement of financial position, income statement, cashflow statement, statement of changes in equity, and notes to the accounts.
Financial Statement Fraud: This refers to the willful misrepresentation of facts on the company’s financial statement to convey a different status about the company relative to its actual status.