What is the Difference Between a CPA and a Forensic Accountant?

If you find yourself in the position of needing to hire an accountant, you might be stuck on exactly who you should hire to properly address your issues. Do you need a standard CPA, or do you need a forensic accountant? To be sure, CPAs are capable of solving many problems for businesses and individuals, but some jobs are only going to be tackled properly by forensic accounting techniques.

Hiring the right person for the job at hand is an important step, so that’s the focus of this article. We’ll lay out some of the cases where a CPA is the right pick, and some examples of when you should turn to forensic accountants instead. Forensic accounting services aren’t typically required as frequently as standard accounting done by a CPA, but when forensic accounting is needed, the stakes tend to be high.

A leader among forensic accounting firms, Space Coast Forensics would love to be your first call on this project. Take a moment today to check in with us and learn more about what we can offer and how we can address the situation you need to resolve. Our professional services are reliable and based on years of experience and knowledge in this industry. Forensic accounting needs to be performed correctly to have any value in the end, and you can trust us to nail it the first time.

What Do CPAs Do?

To become a Certified Public Accountant, or CPA, it is necessary to accumulate significant education in accounting and then pass a challenging exam to prove the knowledge that is possessed. Once licensed, a CPA can perform a range of duties for various businesses and individuals, including performing accounting duties, filing taxes, offering consulting services, and much more. When any kind of accounting work is needed, a CPA is going to be first in line to get that job.

Hiring a CPA can mean retaining the services of an individual who works on a freelance basis, or it can mean working with a major corporation. Whether you choose to work with one of the big accounting firms or a small business, you can rely on a CPA to provide the accounting direction that your business needs to stay on track and compliant with regulations. It can be costly to hire a CPA, but it is even more expensive to make accounting mistakes that will come back to bite you later.

While it’s easy to see a CPA as someone who spends the vast majority of their time at a desk buried in spreadsheets, that’s not always the reality of the job. Some CPAs are more directly involved with the operations of a business than they are the day-to-day accounting work that goes on behind the scenes. This could mean providing strategies that are designed to help the business grow and become more profitable in the future, so the CPA would take on more of an operations and strategy role rather than dealing strictly with the numbers. Of course, someone with a lot of experience as a CPA is uniquely qualified to help businesses make strategic decisions, as having such a detailed understanding of the background financial picture is one of the best assets a business leader can possess.

The Job of a Forensic Accountant

Forensic accountants are professionals within the accounting field that have chosen to focus on a very specific field. Rather than offering general accounting services, forensic accounting offers the ability to take a closer look at financial activity that might not be above board. If a business has suspicions regarding fraud, for example, the decision may be made to bring in a forensic accountant to examine the books and figure out what is going on. When financial crimes are suspected, it is forensic accounting firms that are called to the rescue.

There are a variety of different roles that a forensic accountant may be asked to fill during the course of their career. Some of the common tasks they face include the following.

Fraud Detection

This is the core function of a forensic accountant and it is this type of work that will fill most of their days. Fraud detection is important because it allows companies and other entities to spot signs of embezzlement, money laundering, and other forms of fraud that can significantly harm the organization. If allowed to continue unchecked for months or years, fraud can threaten the existence of a business, or at the very least, significantly hamper how it is able to operate moving forward. While standard accounting firms including CPAs may spot things that look unusual or incorrect, it’s typically up to forensic accounting to get into the details and prove the fraud.

Asset Recovery

A task that is closely tied to fraud detection is that of asset recovery, which is the job of getting back as many of the assets as possible that were lost during fraudulent activity. Obviously, these two often go hand in hand, as the financial forensics may reveal that fraud has taken place, and then the job will shift toward getting back those assets if at all possible. Sometimes, the assets will still be present, just hidden somewhere that they need to be tracked down and recovered. Following a complex trail of accounting transactions, and using advanced investigative techniques and tools, will often allow the forensic accounting services to track down these hidden assets and return them to the business.

Litigation Support

Forensic accounting professionals will occasionally find themselves in court, speaking on behalf of one side of the case or another. Accounting firms that work in standard day to day accounting services typically don’t end up offering testimony in court, but that’s something that forensic accountants will do because of their experience working with law enforcement agencies and the close connection that their work has to legal matters.

One of the best skills for a forensic accounting professional to possess is the ability to explain complicated accounting concepts in basic terms that a layperson can understand. When offering litigation support, it might be necessary to speak in front of a jury that is going to have no technical knowledge of the subject matter. So, breaking down what kinds of crimes were committed, and how the evidence points to those crimes, in a simple and straightforward manner is a powerful skill. For example, if an internal audit reveals a money laundering operation that winds up in criminal charges, explaining what all of that means and how it is executed takes an experienced professional with a detailed understanding of the field.

Risk Assessment

Forensic accounting can also help businesses stay out of trouble with fraud and other issues. It’s not necessary to wait for a problem to arise to call in a forensic accountant, as having them do their work ahead of time to spot risks in the business and improve various internal controls could prove to be a wise investment of time and money in the long run.

In some organizations, especially smaller businesses, a few people have far too much access and autonomy within the financial system. This is often based on personal trust, with the others assuming that no one within this small group would ever do anything fraudulent to harm the business or each other. Of course, this often proves to be an incorrect assumption, and fraud investigations wind up demonstrating that someone has been stealing from the company.

By bringing in an outsider in the form of a forensic accounting firm that can look at things objectively, it will be easier to put controls into place that make fraud much more difficult to execute. The key here is that the forensic accountant doesn’t have an existing relationship with anyone and is purely looking at the situation from a risk reduction perspective. So, when the rules in the business are changed to make it more secure, it’s not a personal attack on any one person – it’s just a smart business move to protect the interests of the group as a whole.

Financial Investigations

Forensic accounting is often required to follow the trail of money to figure out if a company has a fraud problem or if there are just some accounting issues to sort out. All money leaves a trail behind it in one form or another, and the skills that are used to investigate fraud can also be used to simply follow money as it moves through an organization to see where it came from and where it is going. Sometimes, a financial investigation will turn into a fraud case, but not always. In the best outcome, it just winds up being some honest mistakes that led to the financial discrepancies, and those issues can be corrected in order to put the books back in order.

Business Valuation

Accurately valuing a business is another area where a forensic accountant can be useful. The skills these professionals possess are useful when the need arises to accurately determine how much a business is worth, whether when getting ready for a sale, for a settlement in a divorce case, or some other reason entirely. Businesses are complicated entities and getting to the bottom of exactly how much one is worth can be an uphill battle. Bringing in a forensic accountant to take a scientific, strategic approach to this task is a great idea.

Different Goals for Different Roles

On a fundamental level, CPAs and forensic accounting firms are simply doing different jobs. They are both in the accounting space, to be sure, but the goals of the job differ greatly. CPAs are tasked with keeping accurate accounting records, filing accurate tax returns, helping the individual or business save money through sound strategies, etc. It’s all about getting the job done right, managing the flow of money, and keeping things on track.

Forensic accounting firms are more concerned with what happens when things aren’t on track. When there is fraud taking place, or when vulnerabilities exist that open up the possibility for financial fraud, a forensic accountant can be used to deal with the matter. Like a CPA, a forensic accountant also wants accurate financial records, but they play a different role in making sure that happens.

A Different Experience

From the perspective of the individual working in one of these fields, the day-to-day experience from one to the other is quite different. For a CPA, things tend to be pretty predictable, with most days spent in the same office working on the periodic accounting reports that need to be created, among other things. That will vary based on what type of work the CPA does, of course, but the routine of the job tends to be relatively predictable. That can be a good or a bad thing, depending on the perspective of the person and what they want out of their work.

Forensic accounting, on the other hand, tends to be highly variable. The nature of the days that are experienced by someone in this field will change quite dramatically based on the kind of case that is being worked on at the time. There will be plenty of time spent in an office in front of a computer screen, to be sure, but there will also be days spent out in the field looking for evidence, doing asset valuations, talking to witnesses, appearing in court, etc. In some ways, the experience of a forensic accountant is more akin to the experience of a lawyer. Both do a lot of office work, but also get out into the field with regularity to work on their cases.

Both Are Extremely Valuable

The goal of this article is certainly not to identify which of these two types of accountants is more important, or more useful. Nearly every business is going to require the services of a CPA to keep their financial records organized and on track. The need for good accounting work is obvious and a talented CPA can save a business a lot of time, frustration, and money.

At the same time, the niche filled by forensic accountants is an important one, and the professional services these firms offer are also tremendously important. For some businesses, using forensic accounting will be something they do in case of an emergency, such as when investigative accounting is required to find evidence that proves financial fraud. For other, often larger organizations, forensic accountants are used regularly to put good systems and controls in place, monitor for signs of trouble, and generally keep fraud as far away from the company as possible.

Do You Need Our Help?

Bringing in a forensic accountant when you are facing some kind of financial issue personally or professionally might be the best decision you could make. In other cases, however, it simply won’t be called for, and a CPA may be perfectly suited for the work. The only way to find out is to get in touch with Space Coast Forensics right away to discuss your situation and what work you need to be performed. If that falls under the umbrella of forensic accounting, we’ll be glad to assist. We look forward to hearing from you soon!

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