Forensic Accounting and its Legal Framework in India

Abstract

In the globalised and liberalised business environment of the last few years, we face a drastically increasing volume of frauds, especially in the financial sectors in India. The Indian financial services sector has witnessed exponential growth in the last decade—a growth that has not been without its pitfalls, as incidents of fraud have also been on the rise. Forensic accounting gained importance due to increasing number of financial frauds and scams. This new area in accounting encompasses accounting, auditing, and investigative skills, thus emerged to detect frauds. Maurice E. Peloubet coined the term ‘Forensic Accounting’ in 1946. Kautilya was the first economist to articulate the need of forensic accountants. The growing arena of business and surging number of white-collar crimes that have led to the development of Forensic Accounting. Forensic Accounting borrows knowledge from Accounting, Finance, Law Computerization, Ethics, Criminology, etc. While Forensic Accounting developed as early as 1995 in USA, it put its first step in India just few years back. In the last decade, India has witnessed several financial frauds. Combating these frauds is a challenge and forensic accounting helps in the detection and investigation of these kinds of fraudulent activities. This paper aims at throwing light on Forensic Accounting. It encompasses the terminology, a brief note on its historical perspective, its evolution in India and legal framework refers to forensic accounting in India. Forensic Research Foundation has been established in India for the investigation of fraud. Serious Fraud Investigation Office (SFIO) is another noteworthy organization set up in India for serving the same purpose. Contribution from ICAI and Accounting standard on Forensic Accounting may strengthen the walk of Forensic Accounting from infancy to maturity. This new weapon of Forensic Accounting will be an immense help to law enforcement agencies and regulatory bodies in curbing white-collar crimes and scams.