What is Forensic Accounting?
The integration of accounting, auditing and investigative skills yields the specialty known as “forensic accounting” which provides an accounting analysis that is suitable to the court which will form the basis for discussion, debate and ultimately dispute resolution. Forensic Accounting encompasses both Litigation Support and Investigative Accounting.
As forensic accountants, we utilize accounting, auditing and investigative skills when conducting an investigation. Equally critical is our ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting. Forensic accountants are trained to look beyond the numbers and deal with the business reality of the situation.
What does a Forensic Accountant do?
A forensic accountant is often retained to analyse, interpret, summarize and present complex financial and business related issues in a manner which is both understandable and properly supported.
Forensic accountants can be engaged in public practice or employed by insurance companies, banks, police forces, government agencies and other organizations.
A forensic accountant is often involved in the following:
· Investigation and analysis of financial evidence;
· Development of computerized applications to assist in the analysis and presentation of financial evidence
· Communication of their findings in the form of reports, exhibits and collections of documents.
· Assistance in legal proceedings, including testifying in court as an expert witness and preparing visual aids to support trial evidence.
In order to properly perform these services a forensic accountant must be familiar with legal concepts and procedures. In addition, the forensic accountant must be able to identify substance over form when dealing with an issue.
What should you consider when retaining a Forensic Accountant?
The following issues should be considered on retaining a forensic accountant:
· The experience and qualifications of the forensic accountant.
· The forensic accountant should be retained as early as possible in order to obtain the maximum benefit. The assistance that a forensic accountant can provide early in the process can be significant in reducing the overall cost and maximizing the benefit. If retained early, the forensic accountant can assist with the Examination for Discovery, identify additional areas of damages, assist with settlement negotiations and provide a preliminary assessment of the quantum of damages.
· If the forensic accountant is being engaged as an expert witness then he or she should be given access to all of the relevant documentation. If restrictions are imposed upon the scope of the investigation there may be an impact upon the acceptance of the findings.
· In situations where counsel is involved, the forensic accountant should be retained by counsel so that the privilege which exists between the client and counsel will be extended to the work product of the forensic accountant.
Forensic investigations often relate to criminal investigations on behalf of police forces. For example, a forensic accountant may be retained by local police forces and organizations such as the Law Society.
A forensic accountant's report is prepared with the objective of presenting evidence in a professional and concise manner.
Shareholders' and Partnership Disputes:
These assignments often involve a detailed analysis of numerous years' accounting records to quantify the issues in dispute. For example, a common issue that often arises is the compensation and benefits received by each of the disputing shareholders or partners.
Personal Injury Claims / Motor Vehicle Accidents:
A forensic accountant is often asked to quantify the economic losses arising from a motor vehicle accident. The forensic accountant needs to be familiar with the legislation in place which pertains to motor vehicle accidents.
Cases of medical malpractice and wrongful dismissal often involve similar issues in the calculation of the resulting economic damages.
Business Interruption / Other Types of Insurance Claims:
Insurance policies differ significantly as to policy conditions. Accordingly, these assignments involve a detailed review of the policy to investigate coverage issues and the method of calculating the loss.
A forensic accountant is often asked to assist from either an insured or insurer's perspective in the settlement of the case.
Examples of these types of assignments include; business interruptions, property losses and employee dishonesty (fidelity) claims.
Business/Employee Fraud Investigations:
Business investigations can involve funds tracing, asset identification and recovery, forensic intelligence gathering and due diligence reviews.
Employee fraud investigations often involve procedures to determine the existence, nature and extent of fraud and may concern the identification of a perpetrator. These investigations often entail interviews of personnel who had access to the funds and a detailed review of the documentary evidence.
Matrimonial disputes from a forensic accounting point-of-view often involve the tracing, locating and evaluation of assets. The assets to be evaluated and valued may be businesses, property or other assets.
Business Economic Losses:
Examples of assignments involving business economic losses include; contract disputes, construction claims, expropriations, product liability claims, trademark and patent infringements and losses stemming from breach of non-competition agreements.
These investigations are often approached from two different but complimentary perspectives, these being:
· Technical - has a breach of Generally Accepted Accounting Principles or Generally Accepted Auditing Standards or other standards of practice occurred;
· Loss Quantification.
· If the professional in question is an accountant then we are often involved with both perspectives. If the matter involves some other professional the forensic accountant will normally be retained to perform only a loss quantification.