The Sherlock Holmes Of Accounting

Sanjay Sidhu, Executive Director of Advisory at BDO Malaysia, unravels the skills and techniques you will need to build your credentials and reputation as a forensic accountant.
Sanjay Sidhu
Executive Director of Advisory at BDO Malaysia

As the economic environment continues to change, the accounting profession continues to undergo radical evolution, and thus, the emergence of evolved or brand-new breeds of accountant. One such group gaining ever more recognition is the forensic practitioner.

Whilst the practice of forensic accounting is not really new, the growing occurrences of financial collapse, white-collar crime and occupational fraud have brought this branch of service into increased demand and into the spotlight. In line with this has come an increased interest and demand from young accountants to gain the skills and knowledge to become forensic practitioners.

What is forensic accounting?

It is perhaps best to start with definitions. According to the Webster's dictionary, “forensic” can be defined as subject matter that is belonging to, used in or suitable to the courts of judicature or to public discussion and debate. Forensic accounting basically provides an analysis that is suitable to be used in court as a basis for discussion, debate, the resolution of disputes and, increasingly, the initiation or support of criminal proceedings.

The practice of forensics from an accounting perspective is the integration of accounting and audit skill with investigative techniques and a level of professional scepticism. At first glance, this description appears little different from that of a ‘traditional’ audit or even an internal audit. However, the reality is far different - herein lies the first or primary skill for the forensic practitioner – they are an accountant first and foremost.

Being the financial detective

Skill #1: Solid foundation in accounting

The skills learned in the early years of an accountant’s career through performing financial statement audits are the basis on which a career in forensics must be built. The forensic practitioner must have a solid grounding in analytical review, process analysis, risk identification, control identification and techniques, as well as sampling and materiality concepts (even if the latter two are rarely applied in the course of forensic work).

Skill #2: Exceptional mental strength

Closely associated with having the skills above comes the old stereotype of accounting – it’s boring, it’s tedious. While much effort is placed in debunking these statements (by myself as well), it must be recognised that accounting or auditing does involve some element of tedium. The fact that the forensic practitioner must often put sampling and materiality aside would only increase the level of tedium.

With that said, out of this tedium often comes very exciting sets of results. The aspiring forensic practitioner must be sure that they are mentally ready for the level of detail and sheer volume of often repetitive work that goes into these types of engagements.

Skill #3: Good eye for detail

This forms one of the core differences between the financial auditor and forensic practitioner. The forensic practitioner does not apply the concept of materiality in defining their scope. As a direct result, sample testing is rarely performed. The forensic practitioner will often test all transactions within the scope of their engagement as, often, even the smallest of transactions may be indicators of financial schemes that they have been engaged to identify or quantify.

Skill #4: Familiarity with the court

In most circumstances, the forensic practitioner’s work will be used in court. Hence, the forensic practitioner must have an understanding of the rules of evidence and the finer points of maintaining a proper chain of custody. In addition, the evidence has to be obtained from well-defined and appropriate channels in order to maintain confidentiality and integrity. The practitioner’s reporting may often culminate in appearance in court as an expert witness, where their analysis must be clearly presented to counsel, judge and jury.

Skill #5: Inquire and investigate

In order to execute the procedures involved, the forensic practitioner will need to quickly develop an understanding of the potential incident being investigated, possible alternatives to the incident and the motivations of the subjects of the procedures and/or investigation at hand. A level of understanding, creativity and psychology must therefore come into play and be overlaid onto the basic accounting and auditing concepts mentioned earlier. These are skills that the aspiring forensic practitioner cannot always learn, but are most often gained from sheer exposure and experience.

Tools of the trade

The tools and practices of the forensic practitioner are despite being quite similar to those of a financial auditor, quite differently applied. This difference is rooted in specificity, level of detail and repetition. These include the following:

Interview. Detailed interviews are conducted with persons surrounding the subject matter being investigated and, occasionally, also with the persons who are the subject of the investigation. It is not unusual for persons to be interviewed multiple times in the course of a single investigation.

Document review. Frequently large volumes of source and supporting documents are reviewed, many of which will have been obtained from independent third parties in an attempt to corroborate the information obtained from within the company.

Personal or physical investigation. Ranging from background and lifestyle checks on individuals to physically inspecting assets or entire sites.

In summary, the forensic practitioner must be a hybrid of accountant, psychologist, investigator and analyst. This person must have the ability to surround these skills with knowledge and appreciation of due legal process, the rules of evidence and the digital techniques that may support their work. This hybrid knowledge is, in equal part, learnt (in classrooms, from exams, etc) and developed (from experience and interaction).