# Understanding Forensic Accounting: Definition, Uses, and Career Path

![Forensic Accounting](https://www.investopedia.com/thmb/NSs5xw77-oGbbNXxqdegI2rHJsQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/forensicaccounting-Final-85cc442c185945249461779bcf6aa1d5.jpg)

*— Investopedia / Dennis Madamba*

> **Definition**
>
> Forensic accounting is the application of accounting, auditing, and investigative skills to examine financial records for legal evidence.

## What Is Forensic Accounting?

Forensic accounting utilizes [accounting](https://www.investopedia.com/terms/a/accounting.asp), auditing, and investigative skills to examine the finances of an individual or business. Forensic accountants are [CPAs](https://www.investopedia.com/terms/c/cpa.asp) that look for evidence of crimes and commonly work for insurance companies, financial institutions, and law enforcement agencies.

Forensic accountants review financial records for legal evidence and often testify in court as expert witnesses. They may work on cases such as [fraud](https://www.investopedia.com/terms/f/fraud.asp) and [embezzlement](https://www.investopedia.com/terms/e/embezzlement.asp) and explain the nature of a financial crime in court.

### Key Takeaways

*   Forensic accountants are trained professionals who use a combination of accounting, auditing, and investigative skills to analyze financial records and provide legal evidence, often serving as expert witnesses in court cases.  
    
*   The role of forensic accountants extends to tracing funds, identifying assets, and recovering them, making this profession crucial in uncovering financial misconduct such as fraud and embezzlement.  
    
*   Forensic accounting is widely used in litigation and insurance industries to quantify damages and resolve disputes, showcasing its importance in both criminal investigations and civil cases.  
    
*   The involvement of forensic accountants in legal matters like contract breaches and business valuations highlights their integral position in the judicial system, often assisting in complex cases like Ponzi schemes.

## Building a Career in Forensic Accounting

Forensic accountants break down and summarize complex financial data. They compile financial evidence, develop computer applications to manage the information collected, and communicate their findings in the form of reports or presentations.

The accountant's tasks include tracing funds, asset identification, asset recovery, and [due diligence](https://www.investopedia.com/terms/d/duediligence.asp) reviews. Forensic accountants may train in [alternative dispute resolution (ADR)](https://www.investopedia.com/terms/a/alternative-dispute-resolution.asp) because they are heavily involved in legal issues.  

### The Role of Forensic Accounting in Litigation Support

Forensic accounting is utilized in [litigation](https://www.investopedia.com/terms/l/litigation-risk.asp) when quantification of damages is needed. Parties involved in legal disputes use the findings of a forensic accountant to resolve disputes via settlements or court decisions, such as compensation or benefit disputes. A forensic accountant may act as an expert witness if a dispute goes to court.

### How Forensic Accountants Conduct Criminal Investigations

Forensic accountants determine if a [crime occurred](https://www.investopedia.com/terms/f/financial-forensics.asp) and assess possible criminal intent. Such crimes may include employee theft, [securities fraud](https://www.investopedia.com/terms/s/securities-fraud.asp), falsification of financial statement information, identity theft, or [insurance fraud](https://www.investopedia.com/terms/i/insurance-fraud.asp).

Forensic accountants dissected [Bernie Madoff's](https://www.investopedia.com/terms/b/bernard-madoff.asp) [Ponzi scheme](https://www.investopedia.com/terms/p/ponzischeme.asp), helping courts understand its scope and mechanics.

Forensic accountants search for hidden assets in divorce cases and investigate breaches of contracts, [tort](https://www.investopedia.com/terms/t/tort-law.asp), or disagreements relating to company acquisitions like breaches of warranty, or business valuation disputes.

Forensic accountants may investigate construction claims, expropriations, product liability claims, or [trademark](https://www.investopedia.com/terms/t/trademark.asp) or [patent](https://www.investopedia.com/terms/p/patent.asp) infringements or determine the economic results of the breach of a nondisclosure agreement.

### Forensic Accounting in the Insurance Industry

Forensic accounting is routinely used by the insurance industry. A forensic accountant may be asked to quantify the economic damages arising from a vehicle accident or a case of medical malpractice or other [claims](https://www.investopedia.com/terms/i/insurance_claim.asp). A concern with forensic accounting in insurance claims is it focuses on historical data, possibly missing current information that could alter claim assumptions.