The Strategic Role of Forensic Accounting in Identifying Fraud Red Flags in Corporate Financial Scandals
Year: 2026
Type: article
Abstract: : Corporate financial fraud constitutes a major threat to stakeholders such as investors, employees, creditors, financial market regulators, etc. Even though accounting standards, financial statements' auditing, internal controls and corporate governance mechanisms are intended to minimize the risks of fraudulent accounting, numerous cases of financial scandals still occur. In many cases, there are warning signs or "red flags" prior to the detection of any fraudulent activities by companies. Hence, the detection and investigation of those warning signs is an integral part of fraud risk management process. This research analyses the strategic role of forensic accounting in detecting the mentioned above fraud red flags associated with the occurrence of corporate financial scandals. The study applies the qualitative and analytical research methodology based on secondary data and academic literature sources, professional reports, and examples of corporate scandals. The paper analyses the essence of forensic accounting and the most common indicators of financial and behavioural frauds, as well as methods applied by forensic accountants including the analysis of financial statements, ratios, transactions, data analytics, unusual journal entries and related party transactions. Also, the study considers some examples of corporate scandals in order to detect how the red flags could appear prior to the disclosure of any financial misconduct.The results of the study reveal that forensic accounting could be used as an important tool for linking accounting information and investigation of fraud and its risk assessment. Nevertheless, the presence of the red flag itself cannot serve as a proof of the fraud. Professional judgment, evidence confirmation, the existence of strong internal controls, an independent investigation and a positive organizational culture that supports reporting of suspicious behaviour are essential for successful fraud detection.
Author: Roy, Moon Asit
Institution: Sydenham College of Commerce and Economics, Mumbai
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7212376891