What Are the Key Differences Between Forensic Accounting and Traditional Accounting?
Here’re some of the best known differences between a Forensic accounting and Traditional Accounting in a glance;
1. A very obvious and discrete key difference which one can identify between a traditional auditor VS a forensic accountant is that :
The former is someone who checks the math accuracy in the accounting department while the latter is someone whom are looking behind these financial numbers find out what’s not quite right.
2. The second differentiation is the “investigative intuition”.
Intuition refers to the gut instinct which one may have to guide you to the appropriate direction as of where your investigation should start from. This is not text book earned, but rather something which can be earned through massive experiences. Most of the time, no investigation intuition is found nor required in the traditional accounting scope.
3. Traditional auditing is a process of auditing others’ work to determine if they have followed the documented official policies, procedures and practices of the company. The determination is based on evidence. It is a matter of fact and not merely a matter of opinion. This kind of audits is required by financial intermediaries and the government depending on circumstances.
4. Traditional auditing focus on error identification and prevention. Prevention is the result of an effective internal control system. The auditor reviews the effectiveness of the internal control system by sampling transactions of some agreeable percentage. Materiality is the accounting way of designating the importance of a transaction or an event.
5. Traditional Auditors use statistics to determine the probability that material errors will or will not be identified and the possibility of its happening. This is a concern since only a sample of transactions and events will be reviewed. The system of internal control is evaluated. It is argued that If the internal control system is deemed to be highly effective, then material errors are not probable.
6. Traditional auditors typically adhere to the generally accepted auditing standards (GAAS) as promulgated by the Public Company Accounting Oversight Board (PCAOB). External auditors are typically reviewing whether an organization is following GAAP. GAAP are promulgated by the Financial Accounting Standards Board (FASB) .This denotes that means that auditors are affected by all three of these organizations and must stay current with old, new and changing standards and principles issued by all three of these organizations.
7. Instead, forensic accountants use physical evidence, testimonial evidence, documentary evidence and demonstrative evidence to help identifying suspect and culprits.
8. For Forensic Accounting, any type of evidence can be used as information, be it documentary paper, a computer video or audio. However, it requires an expert to interpret the evidence and present it. Demonstrative evidence is not actual evidence. It is just an aid to understanding just like a model of a body part or pictures or other devices are used to help clarify the facts.
9. Forensic Accountant is often asked to serve as an expert witness for a lawsuit or criminal case in a court, the forensic accountant needs to have applied reliable principles and methods to sufficient facts or data. The expert witness is a recognized specialist relative to the principles and methods applied to the sufficient facts or data.
10. A forensic accountant typically need to possess the expertise and skills in these 2 fields : Private investigator and Accountings are what specifically required to be a great forensic accountant. On the other hand, there is no such requirement in the traditional accounting space.