Here are some of the most well-known differences between forensic accounting and traditional accounting at a glance;
1. A very obvious and unobtrusive key difference that one can identify between a traditional auditor VS a forensic accountant is that:
The former is someone who checks mathematical accuracy in the accounting department, while the latter is someone who looks behind these financial numbers to find out what’s not quite right.
2. The second differentiation is the “investigative intuition”.
Intuition refers to the gut instinct one may have to guide him in the proper direction from where he should start his investigation. This is not an earned textbook, but something that can be earned through massive experiences. Most of the time, no research insight is found or required in the traditional accounting arena.
3. Traditional auditing is a process of auditing the work of others to determine whether they have followed the company’s official documented policies, procedures, and practices. The determination is based on evidence. It is a matter of fact and not simply a matter of opinion. This type of audit is required by financial intermediaries and the government depending on the circumstances.
4. Traditional auditing focuses on the identification and prevention of errors. Prevention is the result of an effective internal control system. The auditor reviews the effectiveness of the internal control system by sampling transactions of some acceptable percentage. Materiality is the accounting way of designating the importance of a transaction or an event.
5. Traditional auditors use statistics to determine the probability that material misstatements will or will not be identified and the likelihood that they will occur. This is a concern as only a sample of transactions and events will be reviewed. The internal control system is evaluated. It is argued that if the internal control system is considered to be highly effective, then material errors are unlikely.
6. Traditional auditors generally adhere to generally accepted auditing standards (GAAS) as promulgated by the Public Company Accounting Oversight Board (PCAOB). External auditors typically review whether an organization is following GAAP. GAAP is promulgated by the Financial Accounting Standards Board (FASB). This means that auditors are affected by these three organizations and must keep up to date with old, new and changing standards and principles issued by these three organizations.
7. Instead, forensic accountants use physical evidence, testimonial evidence, documentary evidence, and demonstrative evidence to help identify suspects and culprits.
8. For Forensic Accounting, any type of evidence can be used as information, be it documentary paper, a computer video or audio. However, it requires an expert to interpret the evidence and present it. Demonstrative evidence is not actual evidence. It is just an aid to understanding, like a model of a body part or images or other devices used to help clarify the facts.
9. The forensic accountant is often asked to act as an expert witness in a lawsuit or criminal case in court, the forensic accountant must have applied reliable principles and methods to sufficient facts or data. The expert is a recognized specialist in relation to the principles and methods applied to the facts or sufficient data.
10. A forensic accountant generally needs to possess the experience and skills in these 2 fields: private investigator and accounting are what is specifically required to be a great forensic accountant. On the other hand, there is no such requirement in the traditional accounting space.
