Are you running a business in Seattle? If yes, forensic accounting and auditing are integral parts of business operations. Both are related fields that play vital roles in assisting companies and individuals in managing risks, maintaining compliance with legislation, and identifying fraud. There is a renowned misbelief that the two terms are interchangeable and identical. Hence, forensic accounting Seattle ensures the distinct characteristics of forensic accounting and auditing. Despite these minor similarities, they are different regarding qualifications, job duties, and reporting needs.  

Forensic Accounting 

It is a subspeciality in the accountancy genre seeking knowledge in finance, accounting, law, auditing, quantitative strategies, and investigative techniques to ascertain the existence of a financial reporting misdemeanor. The primary objective of a forensic accountant is to identify deception and criminal misdeeds in a business. 

Auditing 

It’s a detailed investigation of a company’s financial records and transactions to detect any looming deceptions, misdemeanors, or other abnormalities. The objective of a forensic audit is to accumulate evidence that can be utilized to assist legal action or aid the company in taking corrective measures to impede future deceptions. Forensic audits are mainly performed to reply to particular accusations of misdeeds, such as betrayal, financial statement fraud, or any other setbacks. 

Difference between Forensic Accounting and Auditing 

• Need for freedom in executing the engagement – It’s a requirement for auditing but not forensic accounting.

• The individual who conducts the engagement – CPAs in forensic accounting remain engaged in forensics & crime inspections. On the other hand, CPAs in auditing remain engaged in public accountancy.  

• Frameworks used – Forensic accounting uses accounting guidelines, laws & rules, auditing norms, and rules of evidence & processes. Contrarily, auditing uses accounting guidelines and auditing ethics. 

• Evidence collection strategies – Forensic accounting uses surveillance strategies, persuasive techniques, forensic audit techniques, digital forensics, and DNA assessment. On the other hand, auditing uses substantive processes, observation strategies, tests of details, sampling techniques, and tests of controls. 

• Obligation – Forensic inspections are mainly performed voluntarily as an act of deception. On the contrary, an audit is an obligatory agreement for which an organization should recruit an auditor to execute the role.  

When to Hire a Forensic Accountant?

• Litigation cases – Forensic accountants are professional witnesses in legal proceedings. They assist in accumulating, assessing, and generating evidence required for prosecution. 

• Inspection for potential fraud – Forensic accountants research different categories of fraud schemes. You may recruit a forensic accountant when fraud is prevalent in business due to the betrayal of hierarchies. 

• Business valuation – The intricacies involved in financial reporting needs are a hazardous zone. Therefore, businesses may utilize innovative accounting strategies to deceive investors or authorities. 

When to Hire an Auditor?

• Organizations holding significant retirement funds – An extensive retirement fund is an organizational benefit scheme with 100 enrolled staff. Businesses that file Form 5500 yearly with the IRS must have a certified copy of their financial statements.

• Loan application – Banks often demand audited financial statements from applicants to verify their monetary condition. 

• General business verifications – A financial audit may unbolt deficiencies and inconsistencies within your firm. At the same time, small businesses don’t require an annual audit. However, getting audited once can assist your firm in bolstering its accounting controls. External auditors can offer professional opinions on their potency if you have embraced new accounting processes.

Conclusion

Knowing the dissimilarities between forensic accounting and auditing is vital for anyone considering a career in accounting or any affiliated field. While forensic accounting and auditing fields share a few resemblances, they also provide adequate distinctions that may impact the work type, the required qualifications, and available career scopes. Hence, by realizing the differences, businesses can ascertain which approach matches their requirements: Forensic accounting or auditing.