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What Are the Key Differences Between Forensic Accounting and Traditional Accounting?

Here are some of the most well-known differences between forensic accounting and traditional accounting at a glance;

1. A very obvious and discreet key difference that can be identified between a traditional auditor VS a forensic accountant is that:

The first is someone who checks the math for accuracy in the accounting department while the second is someone who looks behind those financial numbers to find out what’s wrong.

2. The second differentiation is “investigative intuition”.

Intuition refers to the gut instinct one may have to guide you in the appropriate direction from which your investigation should begin. This is not an earned textbook, but rather something that can be earned through massive experiences. Most of the time, no investigative intuition is found or required in the traditional reporting entity.

3. Traditional auditing is a process of auditing the work of others to determine if they have followed documented official company policies, procedures, and practices. The decision is based on evidence. It is a question of fact and not just a question of opinion. This type of audit is required by financial intermediaries and the government depending on the circumstances.

4. Traditional auditing focuses on identifying and preventing errors. Prevention is the result of an effective internal control system. The auditor examines the effectiveness of the internal control system by sampling transactions from an acceptable percentage. Materiality is the accounting way of designating the significance of a transaction or event.

5. Traditional auditors use statistics to determine the probability that material errors will or will not be identified and the possibility that they will occur. This is a concern since only a sample of transactions and events will be reviewed. The internal control system is assessed. It is argued that if the internal control system is found to be highly effective, material errors are not likely.

6. Traditional auditors typically adhere to Generally Accepted Auditing Standards (GAAS) as promulgated by the Public Company Accounting Oversight Board (PCAOB). External auditors typically review whether an organization follows GAAP. GAAP is promulgated by the Financial Accounting Standards Board (FASB). This means that auditors are concerned with these three organizations and must keep abreast of 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, whether it is a paper document, computer video or audio. However, it takes an expert to interpret the evidence and present it. Demonstrative proof is not real proof. It is just an aid to understanding, much like a model of a body part or pictures or other devices are used to help clarify the facts.

9. The forensic accountant is often asked to serve as an expert witness in a trial or criminal case before a court. The forensic accountant must have applied reliable principles and methods to sufficient facts or data. The expert witness is a recognized specialist in the principles and methods applied to the facts or sufficient data.

10. A forensic accountant should generally have expertise and skills in these 2 areas: private investigation 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.

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