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Researcher Foresees Regulation of Forensic Accountants

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By Michael Cohn
December 14, 2012

A recently published academic paper asks the thorny question, “Should the forensic accounting profession be regulated?”

The paper, by Wm. Dennis Huber, a CPA and certified fraud examiner, at Capella University, discusses whether the forensic accounting profession and the forensic accounting certification industry should be regulated. The paper cites recent studies, including his, that have uncovered significant problems within the forensic accounting profession and the certification industry for forensic accountants.

“The failure of forensic accounting corporations to disclose either their legal status or the qualifications of their officers and directors, their failure to publish financial statements, and their failure to adopt or enforce a Code of Ethics or Standards of Practice, were among the most significant problems uncovered,” said Huber. “The failures of the corporations were exacerbated by forensic accountants’ failure to investigate diligently the corporations that issued their certifications prior to obtaining their certifications. This resulted in a significant number of forensic accountants holding certifications from corporations that were inconsistent with their beliefs that a forensic accounting corporation should be not-for-profit, and their officers and directors should be qualified.”

Huber argues that the forensic accounting certification industry “is characterized not just by strong, competitive forces but also by outright legal conflict between the corporations that issue forensic accounting certifications. The competition can easily be seen in the various self-promotional materials. The conflict, if not outright animosity, is manifested in the legal actions taken by one corporation against another which, while claiming it is to protect the corporation, does little to advance the forensic accounting profession.”

He sees three alternatives for addressing the problems: voluntary action by the corporations that issue the certifications, establishing an independent agency for accrediting the corporations and certifications, and regulatory intervention. He evaluates the feasibility of the various solutions and concludes that the most realistic alternative is for government regulation of forensic accounting in the form of legislation at the state level. It’s not clear that will ever happen, but he raises issues that forensic accountants may need to consider as the audit and tax prep professions face increasing levels of regulation by the PCAOB and the IRS.

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