What Does Forensic Accounting Mean?

We hear the term forensic all the time, thank to TV shows like CSI and Forensic Files. Furthermore, the news are full of stories about legal proceedings involving forensic accountants, psychiatrists, pathologists, toxicologists and others.

However, most people don’t even know the real meaning of the term forensic. Many are referring it to criminal investigations or “legal-type” work. However, it is much broader.

The term ‘forensic’ is defined by the Merriam-Webster online dictionary as: belonging to, used in, or suitable to courts of judicature or to public discussion and debate; argumentative, rhetorical; relating to or dealing with the application of scientific knowledge to legal problems

We went to the global investigation and forensic accounting firm, SDC CPA, to learn more about what the term ‘forensic’ means. SDC CPA has a broad background and experience in this area.

According to experts from this firm, a simplifying combination of the above definitions explains it best in the context of today’s environment. The simple meaning of forensic is ‘suitable for presentation in a court of law’.

As it has been specified by SDC CPA’s experts, although it appears that the media and entertainment industry seem to focus on the more nefarious criminal matters, there is no distinction between criminal and civil law in the definition.

It is believed my many that accounting and fraud investigation are the same. However, this is not true.

Although forensic accountants perform fraud investigation procedures, the term forensic accounting applies to much more.

In addition to fraud investigations, forensic accountants are often called upon to measure damages arising from allegations related to both contract and tort law.

Despite the fact that there are many measures of damages under contract law, the lost profits experienced by a party to a civil lawsuit stemming from one or more alleged bad acts of another party are frequently estimated by accountants.

Damages under tort law are also calculated by accountants. There damages are intended to compensate victims resulting from the unreasonable acts of others.

From our visit to SDC CPA we also have learned that the term forensic accounting can also apply to the practice of business valuation.

A valuation of an operating or holding company is often required by shareholder and marital disputes.

In these circumstances specialized knowledge is applied by the business appraiser. This includes some combination of accounting, finance, economics and business. The business appraiser may ultimately present his or her conclusions in a court of law.

As it has been pointed out by the forensic professionals from the global investigation and forensic accounting firm SDC CPA, depending on its purpose, a business valuation may also be an example of forensic accounting.

Generally, SDC CPA’s experts claim that forensic accounting refers to the application of specialized accounting, finance, economics and related knowledge and skills in a legal setting.