Research On Forensic Accounting From The Perspective Of Litigation Support

During the late 1970 s and early 1980 s, numerous savings and credit scandals and internal stock frauds emerged in some developed capitalist countries, contributing to the diversification and complication of forms of economic disputes. In response, the government issued many accounting systems and standards in order to strengthen the supervision of economic activities, so that the legal system would be able to offer a valid mitigation channel in events of breach of the accounting system and accounting standards or disputes between relevant subjects. Forensic accounting came into being in this historical background. Forensic accounting is closely related to financial accounting but has its distinctions. It is an interdisciplinary subject across accountancy and law. The study of forensic accounting in China began in the middle or late 90 s but remains in its infancy until now.Rapid global economy growth gave rise to more wealth and more complicated economic disputes. Though the law has offered a way to resolution, the litigation would usually involve both analysis of financial evidences and works pertaining to financial and accounting knowledge. Given the usual complexity of these kinds of cases, both parties and even the attorneys and accountants hired by them may not have sufficient knowledge and experiences as required, which would seriously affects the efficiency of the legal process and possibly do harm to either party’s interests. Therefore, it is necessary to have forensic accountants more involved in litigation. This paper aims to explore theories and practices of forensic accounting from a perspective of its role as litigation support.Firstly,the background, motivation, scope, methodology, significance and originality of the research of litigation-supportive forensic accounting was introduced.Secondly,the emergence, features, workflow, functions and technical methods of litigation-supportive forensic accounting was elaborated.Thirdly, the commonly used loss measurement methods in practice were analyzed and the American practices of misrepresentation damage calculation was discussed regarding its indications to China.Fourthly, problems of litigation-supportive forensic accounting in China and their causes were summarized and analyzed and corresponding improvement suggestions were put forward.Fifthly, the lvdadi case, the so-called “first civil case of SME IPO fraud” in Chinese stock market, was studied to further illustrate that forensic accounting plays a critical role in litigation support.