Forensic Accounting vs. Cost Accounting

Forensic Accounting vs. Cost Accounting

The increasing attention on corporate ethics and fraud has led to the demand for accountants equipped with sufficient investigative and training skills to make informed business decisions and delve into financial misconduct in the workplace. The overlap between cost accounting and forensic accounting yields a well-rounded professional with both management and investigative skills. This paper provides a sharp comparison between the two sets of accounting, highlighting the use of forensic accounting in cost accounting.

By definition, forensic accounting refers to a field area of practice of accounting that concentrates on a dedicated technique and methodology designed to ascertain financial or economic fraud. Forensic accountants are generally auditors who, by their skills, experience, and attitudes, are professionals in detecting and documenting financial and accounting transactions. On the flipside, cost accounting refers to a form of managerial accounting that focuses on capturing the total cost of production of a company based on variable cost assessment of every production step as well as fixed costs. Cost accounting is applicable inside by management in a bid to make well-versed business decisions. To that end, forensic accounting differs from cost accounting, at least concerning the nature of work done in the fields. Important to note, cost accounting is dependent on company management, while forensic accounting is independent in the aspect of the profession.

Even though cost accounting is management-based, professionals in the field focus on detecting, formulating, and dealing with several various disclosures and transactional challenges bearing on numerous fraudulent activities. To that effect, cost accounting professionals require investigative skills inherent in forensic accounting to be able to uncover fraudulent variable costs. XXX writes that the purpose of forensic accounting is to limit the risk of fraud for the reason the possibility of fraud may go undetected in most corporations. Today, cost accounting no longer confine within book-keeping that is merely a statement recording of the financial affair of an organization. In the business world, management accountants apply concepts of forensic accounting to enhance credibility awareness for the profession.

Management or cost accounting offers a unique set of skills, including a knack for analysis of data in addition to a broader business viewpoint compared to forensic accountants. Similarly, management accountants go beyond internal financial data, but synthesize entire organizational performance relating to operational, measures of effectiveness, efficiency, financial, and mix those with macroeconomic data XXX. A typical cost accountant has extensive knowledge of the economic, social, and political influences of their business or organization. On the flipside, forensic accountants focus on an organization’s internal control structure and uncovering fraudulent activity. Professionals specializing in forensic accounting have no mandate with functions of management accounting that concentrate on the overall performance of an organization.

In view of the typical awareness of cost accountants on social and economic environments of the business, they stand in a favorable position to use inputs of forensic accounting by proactively pointing to the irregularities and apparent inconsistencies in individual or company broader economic and business trends. Similar to forensic accountants, cost accountants have a direct responsibility in averting and identifying fraud. The management accountants and their forensic counterparts have coinciding responsibilities to promote the integrity of the process of financial reporting as well as safeguarding entity’s assets from embezzlement. Collectively and individually, both professionals are responsible for discouraging and sensing employee and financial statement fraud XXX. Just like forensic accountants, their management counterparts share responsibility in collecting the organization’s financial data, conducting business analytics, and question unusual deviations in transactions.

In addition to fiduciary accountability, cost accountants stand the significant responsibility for integrity, quality, and reliability of the process of financial reporting. To that end, cost accountants apply forensic skills to perform regulatorily and standardization of financial reporting. As the operative arm of the management in line with accounting and financial aspects, cost accountants have a natural responsibility of deterring and detecting fraudulent financial transactions just as forensic accountants. Given the responsibility of cost accountants, their roles relating to monitoring financial performance, utilization of asset, and assessing deviations means that they use forensic analytics to detect any form of misappropriation and fraud perpetrated by lower and mid-level workers. Similar to the role of forensic accountants, cost accountants apply management techniques and tools to uncover unusual and significant deviations, that is, raise red flags that indicate the possibility of fraud. Equally, the conduct investigations of highlighted suspicious transactions and determined the legitimacy of economic or business for the significant and unusual deviations. Thus, the role cost accountants indicate that they require forensic analytic skills to identify financial and asset deviations and report the findings to an audit committee or appropriate levels of management.

In conclusion, the field of cost accounting overlaps intensely with forensic accounting, given the investigative and preventive roles given to the former. At the management level, cost accounting deals with reviewing company transactions, such as purchase orders and account payables, with the sole intention of identifying irregularities. Even though management accounting differs from forensic accounting role definition, the scope of both professions depends on the ability to prevent, detect, and report fraud. However, forensic accounting works to prosecute perpetrators; cost accounting focuses on providing insightful information for management to promote sound business decisions.