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Introduction to Forensic and Investigative Accounting
This chapter de
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
nance, information systems and the law.
nition and Development of Forensic Accounting
ning Forensic Accounting
is the action of identifying, recording, settling, extracting, sorting, reporting, and verifying
nancial data or other accounting activities for settling current or prospective legal disputes or using such past
nancial data for projecting future
nancial data to settle legal disputes.
Implicitly, there are a couple of other factors to incorporate in the de
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
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.
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
cate being passed by all states.
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—
nancial reporting coupled with both internal and external auditing—is relatively recent. Before
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.
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
ed Forensic Investigators of Canada
maintains that the
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