What does a Forensic Accountant do?
relating to courts of law
from Latin forensis ‘in open court, public’, from forum
In very simple terms, a forensic accountant provides accounting services in disputes. The forensic accountant has technical, investigation and communication skills:
- technical: valuation, accounting, and financial expertise
- investigation: collecting, analysing and evaluating information
- communication: interpreting and presenting information clearly
“The role of the forensic accountant is to investigate and analyse to help resolve financial issues in a manner that meets standards required by courts of law”
Forensic Accounting, Crumbley, Heitger and Smith
“A forensic accountant is trained to look beyond the numbers and deal with the business realities of situations”
The forensic accountant is a professionally-qualified accountant, bound by the regulations, ethical requirements and quality standards of the professional association.
Roles of the forensic accountant
The role of the forensic accountant include:
- Consultant and adviser – the forensic accountant advises one of the parties, for example preparing for trial and cross-examination (sometimes called a shadow expert or dirty expert), the duty is to the client
- Party-appointed expert – the forensic accountant’s duty is to the Court, to prepare a report compliant with Court rules
- Single expert – a joint appointment by both parties, again with the duty to the Court
The role of the forensic accountant, however, is not always confined to an independent expert. Often a forensic accountant can be called on to assist in arbitration, mediation or settlement negotiations.
Types of work
The types of work typically completed by the forensic accountant include:
- Valuations – valuing businesses, shares, assets and liabilties, for use in shareholder disputes and transaction disputes
- Valuing Economic Damages – calculating actual and potential damages such as lost earnings, lost profit, lost business and the physical loss of property
- Family disputes – uncovering hidden assets or undisclosed sources of income, valuing business interests and preparing a statement of assets and liabilities
- Investigations – examining financial statements to identify irregularities, such as overstatements, understatements, and omissions and calculating the effect of such issues
Other work commonly includes: identifying documents that need to be procured by discovery, subpoena or made the subject of questioning; extraction of financial information; compilation and interpretation of financial information.
Often a matter can involve a large amount of information and or be complex. The role of the forensic accountant is to sift through the information and identify relevant and pertinent facts. Mistakes at trial can often be made due to misunderstanding and confusion about the facts.
Types of matters
Matters where a forensic accountant is often required, include:
- Commercial breach of contract claims, such as breach of employment contract
- Torts such as passing off and breach of fiduciary duty
- Trade practice infringements, such as false and misleading statements
- Transaction disputes, such as breach of sale and purchase contract
- Shareholder disputes, such a minority oppression
- Loss of income resulting from accidents
Alternative dispute resolution (ADR)
Litigation is an expensive and drawn out process. Most commercial matters are resolved without going to court. Alternatives to litigation, include negotiation, mediation, arbitration and expert determination. The advantages of ADR include flexibility, privacy and confidentiality, lower cost and less formal. The forensic accountant can assist parties in ADR, providing the necessary analysis and evidence.
Negotiation can be direct with the other party, or through a third party. Successful negotiation requires focusing on the issues rather than individuals, emphasising common ground, managing emotions, being creative about options for resolution and being clear in communication.
Mediation is a process whereby the participants aim to reach a workable agreement, with the assistance of an independent person acting as a mediator. Mediation may be suitable if the parties want to control the outcome and maintain confidentiality and ongoing relations.
Arbitration is a process where the participants present evidence to an independent person, the arbitrator. The arbitrator then makes a decision based on the information. Arbitration is a more formal and structured process than mediation. Arbitration may be suitable where the parties want a decision made for them, but want a less formal and quicker process than through the courts.
Expert determination is a process whereby the parties agree to be bound by the decisions of an independent expert. It is a relatively quick and efficient way of resolving disputes which are either simple or technical in nature. The expert is not an arbitrator.
Simon is a CA Accredited Business Valuation expert, Chartered Accountant and a Certified Fraud Examiner. Simon specialises in providing forensic accounting and valuation services. Prior to founding Lotus Amity, he was a Forensic Accounting partner with BDO Australia and led their National Forensics practice. He has worked as a forensic director for a major offshore forensic accounting practice which included assisting in multi-billion-dollar litigation in relation to giant Bernie Madoff Ponzi scheme. Simon provides valuation services in disputes, for raising finance, for restructuring, transactions and for tax purposes.
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Copyright © 2017 Lotus Amity Pty Ltd. All rights reserved. This article is the property of the author. This article is intended for general information purposes only and is not intended to provide, and should not be used in lieu of, professional advice. The publisher assumes no liability for readers’ use of the information herein and readers are encouraged to seek professional assistance about specific matters.