Forensic accounting is not simply about investigating major fraud. Its core habits — scepticism, lateral thinking and evidence-led analysis — can strengthen everyday accounting work.

Forensic accounting can sound like a specialist field reserved for court cases, fraud investigations and major corporate disputes.

Dermot Madden takes a more practical view in his latest webinar.

Drawing on his experience in Revenue, corporate enforcement and expert witness work, Madden argues that forensic thinking starts with something much simpler: learning to look at familiar information from a different direction.

That matters whether you are investigating a suspected fraud, reviewing an unusual transaction or simply trying to understand what a client's accounts are really telling you.

Here are five habits from forensic accounting that accountants can apply in everyday practice.

1. Ask the obvious question

Accountants spend years developing technical knowledge. That expertise is essential, but it can sometimes make a straightforward question seem too basic to ask.

For Madden, asking those questions is fundamental to forensic work.

An unusual transaction should prompt you to ask why it happened. A figure that does not fit the wider business should make you investigate further. If the explanation creates another inconsistency, follow that inconsistency too.

This approach is particularly useful when reviewing incomplete or questionable records. Rather than accepting the accounts as the only version of events, consider what other information could confirm or contradict them.

Bank transactions, subsequent payments, customer records and physical observations can all change your understanding of what happened.

The lesson is straightforward: do not confuse complexity with insight. Sometimes the simplest question exposes the most important issue.

2. Understand the business, not just the accounts

Forensic thinking requires you to move beyond the ledger.

Madden repeatedly emphasises lateral thinking: understanding what a transaction means in the context of the actual business rather than treating it solely as an accounting entry.

That can mean questioning whether a reported result makes commercial sense. It can also mean looking at the relationships behind transactions.

Who controls the business? Who deals with its suppliers? What transactions exist between directors and the company? Does activity in one branch look different from the rest of the organisation?

Behaviour and culture matter too.

Madden highlights the importance of management visibility and organisational culture when considering fraud risk. A branch can develop its own working practices, while strong personalities can influence whether employees feel able to challenge questionable behaviour.

For accountants in practice, this reinforces the value of knowing the client's operation rather than seeing only the records delivered at year-end.

3. Look for evidence that proves you wrong

Perhaps the most important forensic habit is resisting the temptation to prove your own theory.

When examining a dispute, Madden argues that an accountant should seek evidence supporting the client's position and evidence contradicting it.

That distinction becomes particularly important if your work could eventually be scrutinised in court.

Starting with a conclusion and collecting only supporting evidence creates bias. Starting with the evidence and testing competing explanations produces a much stronger analysis.

The same principle has value outside formal forensic engagements.

Suppose a client provides a plausible explanation for an unusual balance. Instead of asking only, "What evidence confirms this?", also ask, "What evidence would show that this explanation is wrong?"

That small change encourages professional scepticism without assuming wrongdoing.

4. Pay attention to unusual transactions and patterns

Fraud does not necessarily announce itself through an obviously fraudulent transaction.

Madden points instead to unusual activity: unexplained capital introduced into a company, unusual director transactions, unexpected movements through bank reconciliations, questionable expenses, payroll anomalies or inventory that does not behave as expected.

Gross profit can also provide clues.

If similar operations would normally be expected to produce broadly comparable margins, a significant difference deserves an explanation. It does not prove fraud, but it gives the accountant somewhere useful to investigate.

The objective is not to treat every anomaly as evidence of wrongdoing.

It is to notice when something does not fit and remain curious until you understand why.

That mindset can be particularly valuable in smaller practices, where familiarity with a longstanding client can otherwise make unusual behaviour easier to overlook.

5. Treat every forensic engagement as if your work may be challenged

A forensic assignment may settle without reaching court. Madden's advice is to work from the beginning as though it could eventually get there.

That affects how evidence is gathered, handled and documented.

It also affects the accountant's independence. Your role is not simply to construct the strongest possible version of the client's argument. You need to understand the weaknesses as well as the strengths.

Before accepting a substantial forensic assignment, Madden recommends defining its scope first. Establish what information is likely to be available and whether the work can realistically answer the question being asked.

Evidence management then becomes critical. Original documents should be protected, records of evidence handling maintained and specialist computer-forensics expertise considered where digital information is involved.

Report writing matters too.

State your conclusion clearly and then explain the evidence supporting it. Avoid embellishing facts. If you do not understand a question when giving evidence, seek clarification rather than attempting an answer you cannot properly defend.

Forensic thinking is useful before there is a forensic case

You do not need "forensic accountant" in your job title to apply these principles.

The underlying skill is critical thinking.

Ask why something happened. Consider alternative explanations. Understand the people and business behind the numbers. Test the evidence against your own assumptions. Be prepared to change your conclusion when the facts require it.

Perhaps most importantly, retain enough professional humility to ask the question that everyone else assumes has already been answered.

That is not simply useful in an investigation.

It is useful accountancy.

Frequently asked questions

What is forensic accounting?

Forensic accounting applies accounting knowledge, investigation and evidence analysis to financial questions that may involve disputes, suspected fraud or legal proceedings. In the webinar, Dermot Madden emphasises that the underlying approach is broader than specialist investigations. Accountants can use forensic thinking in everyday practice by questioning unusual transactions, testing explanations and following the evidence rather than assuming the accounting records tell the complete story.

What does a forensic accountant do?

A forensic accountant examines financial information to understand what happened and assess the evidence supporting different explanations. Depending on the engagement, this can involve reviewing accounts, bank transactions, business records and other evidence. The accountant may also need to prepare findings that can withstand external scrutiny. Madden stresses the importance of defining the scope of an assignment before undertaking substantial forensic work.

Is forensic accounting only used for fraud investigations?

No. Fraud investigation is an important application, but the techniques discussed in the webinar have wider uses. Professional scepticism, critical thinking and evidence-led analysis can help accountants investigate unusual balances, transactions or business behaviour in ordinary practice. The key is to recognise something that does not fit, ask why it happened and seek evidence that either supports or challenges the explanation.

What skills does a forensic accountant need?

The webinar highlights critical thinking, professional scepticism and lateral thinking as particularly important. A forensic accountant needs to look beyond individual accounting entries and understand the wider business context. They should ask straightforward questions, consider alternative explanations and remain willing to revise their conclusions when the evidence changes. Clear documentation and communication also become important when findings could be challenged.

How can accountants apply forensic thinking in day-to-day practice?

Start by investigating information that appears inconsistent with your understanding of the business. Ask why an unusual transaction occurred and whether other records support the explanation. Consider bank transactions, customer or supplier information, director transactions, payroll, expenses and inventory where relevant. The aim is not to presume wrongdoing, but to understand anomalies rather than accepting them without further enquiry.

What financial warning signs should accountants investigate?

The webinar identifies examples including unexplained capital introduced into a company, unusual director transactions, bank reconciliation movements, questionable expenses, payroll anomalies and unexpected inventory patterns. Changes in gross profit can also provide a reason for further investigation. None of these necessarily proves fraud. They are indicators that may justify asking further questions and gathering additional evidence.

Why is professional scepticism important in forensic accounting?

Professional scepticism helps prevent an accountant from deciding on a conclusion first and then searching only for evidence that supports it. Madden recommends considering evidence both for and against the client's position. A useful practical question is: "What evidence would show that this explanation is wrong?" This approach can produce a more balanced assessment and expose weaknesses that might otherwise be overlooked.

Why does understanding the business matter in forensic accounting?

Accounting records make more sense when considered alongside how the business actually operates. Relationships, management behaviour, suppliers, customers and differences between locations can provide important context for financial information. Understanding the business helps an accountant recognise when a transaction or financial result is unusual and identify where further investigation may be worthwhile.

How should accountants approach evidence in a forensic engagement?

Madden's approach is to work as though the evidence may ultimately be challenged. That means considering how information is gathered, handled and documented from the beginning of an engagement. Original documents should be protected and evidence handling recorded. Where digital evidence is involved, specialist computer-forensics expertise may also need to be considered.

Should a forensic accountant always support the client's case?

No. The approach described in the webinar requires the accountant to examine evidence that both supports and contradicts the client's position. The objective is to reach conclusions based on the available evidence rather than construct a predetermined argument. This distinction becomes especially important where an accountant's analysis or conclusions could later face scrutiny in legal proceedings.

What should an accountant consider before accepting a forensic accounting assignment?

The scope of the proposed work should be established before taking on a substantial forensic assignment. Madden recommends considering what information is likely to be available and whether the work can realistically answer the question being asked. Accountants should also consider the evidential and specialist requirements of the engagement rather than assuming conventional accounting procedures will always be sufficient.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The authors accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.