Forensic accounting is not as new as many people think, it has existed for many fears with the growing complexity of business environment and the growing number of fraud in our organization. In the beginning auditors took responsibility for detection of fraud, and forensic accounting techniques were used in their audit activities.
Beginning from early 1940s, auditors and the accounting profession began to redefine the duties of an audit through the auditors are primarily known for expressing their opinion as to whether the financial statements of an organization showed a true and fair view of the entity’s transaction.
With the strident calls and pressures on modern audit to once again assume responsibility for fraud gave birth to forensic accounting. People believe that audit and forensic accounting will soon reunite again. This forensic accounting techniques is believed to detect and prevent fraud which will help in bridging the audit gap as it relates to inability of an audit to detect fraud.
Joshi (2003) ascribed the origination of forensic accounting to Kutilya, the first economist to openly recognize the need for the forensic accountant whom he (Joshi) said, mentioned 40 ways of embezzlement centuries ago. He, however stated that the term forensic accounting was coined by Peloubet in 1946. Crumbley (2001) wrote on same when he stated that a form of forensic accounting can be traced back to an 1817 court decision. He stated also that a “young Scottish accounting issued a circular advertising his expertise in arbitration support in 1824” but that Peloubet was probably the first to publish the phrase forensic accounting. Investigation of fraud and corruption is confirmed thus, not to be new, even in Nigeria. It is only gaining prominence because of the growing wave of crime under the seemingly new nomenclature in the past few years (Coenon 2005).
In some western countries in the 1980s particularly in the USA, forensic accounting was introduced. This profession identifies a field composed of accounting, auditing and investigative skills (Bozkurt 2000). In this concept, forensic accountants are believed to be providing an account analysis to determine the facts necessary to resolve a dispute before it is brought before a court or the Lawsuit process takes its course.
The term forensic accountants are generally used for certified Public Accountants (CPAs) who perform the activities of analyzing, examining, investigating, auditing and questioning that follows an organized way in order to find the truth or reach an expert opinion by starting with the truth. Forensic accounting and Litigation support involves the services provided by CPAs on legal issues (Crumbely 1995).
Maurice E. Peloubet is his 1946 essay – “forensic Accounting: its place in Today’s Economy”. By the late 1940s, forensic accounting had proven its worth during World War II; however formalized procedures were in place until the 1980s when major academic studies in the field were published (Rasey 2009).
Forensic accounting is the specially area of the accountancy profession which describes engagements that results from actual or anticipated disputes or Litigation. They are expected to trace money laundering and identify theft activities as well as evasion. Insurance company’s hire forensic accountants to detect insurance fraud such as arson and law offices employ forensic accountants to identify marital assets in divorce cases (Weygandt et al. 2008).