Forensic Accounting

Forensic accounting is a new compositive area in accounting. It takes advantage of the skills of accounting, auditting, law. Like the article "Forensic Accounting: A New Growth Area in Accounting" says, "What is Forensic Accounting? A qualified forensic accountant is like a three-layered wedding cake. The largest, bottom layer is a strong accounting background. A middle, smaller layer is a thorough knowledge of auditing. The smallest top layer of the cake is a basic understanding of the legal  environment. The icing on the cake is a strong set of communication skills, both written and oral. In general, a forensic accountant is engaged in a combination of fraud detection and litigation support. "

After learning forensic accoubting for a term time, I just think forensic accounting is a very practical scinece, and its purpose is clear and definite, it point directly to financial fraud and economic crimes. Therefore it create a lot of methods to find financial fraud, for instance ratio analysis to show the ability of debt paying of a company, horizontal analysis to show the amount and the percentage change from one period to next, structural analysis to show the structure of assets and the cash flow. Those methods are quite professional, By using them accurately can you find even the tiny suspicious place. 

I was confused about the difference between forensic accounting and auditing at first, and find the answer when I read the text book. In general, their purpose are much different, forensic acountting gathers a lot of evidence to find out financial fraud and economic crime, while auditing supervises the situation that changes in financial position in a company and declare the opion about the authenticity and fairness of financial statement. So we can see clearly forrensic accounting grows with financial fraud and economic crime.

"The collapse of Enron may be one of the most significant business events that has occurred in the last 50 years. The company, ranked No. 7 on the Fortune 500 list doing $100 billion of business in 2000, had its stock drop from more than $90 to $.25 in just 14 months. The Enron debacle has had a devastating effect on the business environment. Stockholders and lenders have lost tens of billions of dollars and Enron’s 20,000 employees have seen their retirement savings evaporate. The collateral damage continues to reverberate and punish those both directly and indirectly involved. Enron’s outside auditor, Arthur Andersen, along with the accounting profession itself, have been dealt a crushing blow. Beset by lawsuits from all sides and its reputation in tatters, its survival is very much in doubt. " 

That's the backgrounds in America, then what about China? Nowadays China is faced with social transformation, many things are changing, it requires the social systems to reform quickly and correctly. In economy area, within the establishment of property rights system, the more and more frequent business activities, and the request of government by law, we need something can combine both economic world and the law world. On the other hand, bad things are always follow good things, when we are more open and free, cheating,fraud, embezzling, corruption apears. Especially erosion of state assets in the system reform of state-owned enterprise, fraud in company listing and so on. Many problems indicated that we need supervision, but traditional ways of supervising can't satisfied the new ways of cheating and fraud. So forensic accounting emerges as the times require.