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© 2009 CCH. All Rights Reserved. Chapter 1 1 Chapter 1 Introduction to Forensic and Investigative Accounting CHAPTER SUMMARY Overview This chapter de f nes a broad approach to forensic accounting and creates a frame of reference for students to read and understand the rest of the book. Upon tracing the threads of forensic accounting through its history and development, students will understand forensic accounting to be a challenging discipline that substantially interacts with economics, f nance, information systems and the law. De f nition and Development of Forensic Accounting ¶1001 De f ning Forensic Accounting Forensic accounting is the action of identifying, recording, settling, extracting, sorting, reporting, and verifying past f nancial data or other accounting activities for settling current or prospective legal disputes or using such past f nancial data for projecting future f nancial data to settle legal disputes. Implicitly, there are a couple of other factors to incorporate in the de f nition: time and purpose. Forensic accounting focuses on the past, although it may do so in order to look forward. Forensic accounting is accounting performed in some circumstances for a speci f c legal forum; in other circumstances it is accounting performed in anticipation of presentation before a formal forum. Forensic accountants may be employed in a wide variety of risk management engagements, along with areas such as valuation, damages, intangibles, and so on. ¶1011 Historical Roots of Accounting The history of accounting dates back to temple priests taking inventory of livestock and has evolved through time to such present events as the examination requirements for the CPA certi f cate being passed by all states. ¶1021 History of Financial Reports and Legal Challenges Financial reports on business operations and performance were created by accountants in the United States, Canada, and Europe for a long time before actual independent audits were mandated. The current system of accounting checks and balances— f nancial reporting coupled with both internal and external auditing—is relatively recent. Before f nancials were audited by independent outside experts, the courts were often the place where challenges were made and accounting experts were brought in to give testimony on the disputes in question. ¶1031 Threads of Forensic Accounting Forensic accounting (or at least, accounting expert witnessing) can be traced as far back as 1817 to a Canadian court decision of Meyer v. Sefton . Thus, the website of the Association of Certi f ed Forensic Investigators of Canada maintains that the f eld of forensic and investigative accounting had its genesis in Canada. Seven years after the Canadian case, on March 12, 1824, a young accountant by the name of James McClelland started his business in Glasgow, Scotland, and issued a circular that advertised the various classes of forensic-type work he was prepared to undertake.
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2 Forensic and Investigative Accounting
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