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Glossary/Fraud and ethics

Forensic accounting

Forensic accounting is the application of accounting, auditing and investigative skills to disputes and suspected wrongdoing, producing findings usable in litigation, arbitration or internal investigations.

CORAA TeamUpdated November 5, 2026

Definition

Forensic accounting covers litigation services, such as damages analysis and expert testimony, and investigation services, such as tracing misappropriated funds. AICPA members performing forensic services follow the Statement on Standards for Forensic Services No. 1 (SSFS 1), which applies to engagements accepted on or after January 1, 2020. Under SSFS 1, a member does not opine that fraud has occurred, because that is a legal conclusion for a court.

Why it matters in an audit or review

An audit gives reasonable assurance on financial statements and is not designed to find all fraud. When an auditor suspects fraud, management or the board may bring in a forensic accountant, whose work is scoped to the allegation. The two engagements have different objectives, and auditor independence rules affect whether the same firm can do both.

Example

Illustrative: after an anonymous tip, the audit committee hires a forensic accountant to trace disbursements to one vendor over 24 months. The report lists payments and supporting evidence and does not say the vendor committed fraud.

Common mistakes

  • Expecting an audit to serve as a fraud investigation.
  • Stating a legal conclusion in the report.

Sources

  • AICPA, Statement on Standards for Forensic Services No. 1 (SSFS 1)
  • AICPA, AU-C Section 240, Consideration of Fraud in a Financial Statement Audit

Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error

Standards

SSFS 1

Related terms

  • Fraud examination
    Fraud examination is a structured process for resolving fraud allegations, from predication through evidence gathering, interviews and reporting, as defined and taught by the Association of Certified Fraud Examiners.
  • Certified Fraud Examiner (CFE)
    A Certified Fraud Examiner is a professional credentialed by the Association of Certified Fraud Examiners after meeting experience and education requirements and passing a four-section exam covering fraud schemes, law, investigation and prevention.
  • Fraud triangle
    The fraud triangle is a model that says fraud tends to occur when three conditions meet: pressure or incentive, a perceived opportunity, and a rationalization. AU-C 240 builds its fraud risk factors on this idea.
  • Audit data analytics
    Audit data analytics is the use of automated tools and techniques to analyze whole populations of data for risk assessment, testing and anomaly detection, rather than relying only on samples.

Go deeper

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