Q&A

For answers to our most frequently asked questions, please click on a link below.

• What is forensic accounting?
• What is the typical profile of a forensic accountant?
• Who retains forensic accountants?
• What do forensic accountants do?
• How is a forensic accounting analysis different from an audit?
• How much might it cost for a forensic accounting, business valuation, or analysis of economic damages?
• Why might I need a business valuation?
• How long will it take for a business appraisal or forensic accounting?
• What kind of information will I need to gather for a business valuation?
• How long might it take to complete a business appraisal, forensic accounting investigation, or analysis of economic damages?
• What are potential red flags of fraud in my business?

Also known as investigative accounting, forensic accounting is a detailed examination and analysis of financial documents and records for use as evidence in a court of law. The term “forensic accounting” can refer to anything from the execution of a fraud analysis to the recreation of “true” accounting records after the discovery that they have been manipulated.

• IT IS NOT “accounting for dead people” (yes, we’ve been asked this… many times)
• IT IS the application of a wide range of accounting, auditing, and investigative skills to measure and verify economic damages and resolve financial disputes
• IT IS the application of an otherwise criminal mentality for the forces of good
  

Contrary to what some think and we ourselves would like to believe, we are not cool CSI-types. Rather, forensic accountants often share similar backgrounds with tax accountants and auditors, the epitome of anti-cool. Indeed, some practitioners segue into forensic accounting after years of specializing in other accounting areas. For all intents and purposes, a typical forensic accountant will:

• Be analytically-minded and inquisitive, with “street smarts”
• Be able to think creatively or “outside the box”
• Be able to multitask and work well under pressure
• Be able to communicate complex financial concepts in a manner that is simple and easy to understand
• Usually hold at least the CPA and CFE (Certified Fraud Examiner) designations
  

Forensic accountants are retained by law firms, corporations, banks, government agencies, insurance companies, and other organizations to analyze, interpret, summarize and present complex financial and business related issues in a simple and concise manner.

• Fraud detection, documentation, and presentation in criminal trials and claims
• Calculate economic damages (the dollar amount of harm that one party allegedly caused another party)
• Trace income and assets, often in an attempt to find hidden assets or income
• Reconstruct financial statements that may have been destroyed or manipulated

For more information, please visit our forensic accounting services page.

The difference between the public’s expectation of the purposes and objectives of an audit and the CPA’s responsibilities under Generally Accepted Auditing Standards has been referred to as the “expectation gap”. Forensic accounting can help to bridge the expectation gap.

In comparison, forensic accounting and audit differ in specific ways, as shown below:

In practice, there are differences in mindset between forensic accounting and audit:

• “Investigative mentality” vs. “professional skepticism”. A forensic accountant will often require more extensive corroboration.
• A forensic accountant may focus more on seemingly immaterial transactions.
• A forensic accountant will often look for indications of fraud that are not subject to the scope of a financial statement audit.
  

Since our professionals are often retained as expert witnesses in litigated matters, our fees are typically based upon hourly rates. The fees ultimately incurred and charged will depend upon variables such as the complexity of the case, the timing of the required analysis, and the ultimate purpose of our engagement. In non-litigated engagements we can offer fixed-fee arrangements under certain circumstances. In most engagements, we will typically require a signed engagement letter and a retainer amount. Please contact our firm for specific information regarding our fee structure or to receive an estimate for a particular engagement.

Our business valuation engagements often require that we provide consulting or expert services in the following situations: mergers and acquisitions, marital dissolution, dissenting shareholder actions, tax planning, succession planning, and intellectual property disputes. Business valuation engagements also include situations where we are asked to value intellectual property, perform feasibility studies, or determine lost business value for use in economic damage claims.

For more information, please visit our business valuation services page.

The information we typically request for a business valuation differs based on factors such as the entity’s corporate form, the type of accounting system used, the availability of projections, and the willingness of management to provide information. While each of our document requests are specifically tailored for individual engagements, we do have a very general document request list that provides an indication of the types of documents that are usually helpful.

Please click here to view a copy of our general document request list (PDF file).

If the engagement will be a litigated matter, the timing of our analysis will be heavily dependent upon the timing of discovery responses from other parties. Since almost all of our forensic accounting and economic damage analysis engagements are for litigation purposes, it is difficult to provide timing estimates for those engagements without more detailed information. As general guidance, a business valuation that is not within the context of litigation can often be completed approximately four to six weeks after the necessary documents are received.

If an assignment requires a quick turnaround (such as a reported opinion within two to four weeks) the overall engagement costs may be higher than usual to the extent that professionals at higher hourly rates will be used more than in a non-expedited engagement. Please contact our firm to receive a timing and fee estimate for a particular engagement.

In many cases, we are initially retained to review financial records because of a hunch or suspicion by one party that fraud or accounting irregularities are being facilitated by another party. Some of the more frequent observations that lead to these intuitions include the following:

• The balance sheet doesn’t balance.
• There are minimal or no reported cash sales for a company that might be expected to receive cash on a regular basis, such as a restaurant.
• There are significant and consistent adjustments to the accounts receivable account.
• There is a higher level of sales returns during specific times of the day or during a specific employee’s shift.
• There are significant transactions with related parties or with suppliers whose details are unknown.
• There is no clear separation of accounting duties.
• An employee with control over or access to cash and accounting records refuses to take time off from work.
• There is a distinct difference between an employee’s income (or income capacity) and their lifestyle.
• An employee continually claims to rewrite accounting records under the guise of neatness in presentation

Sage has office locations in Salt Lake City, Las Vegas, and Boise but provides its services to clients nationwide. For more information regarding a specific situation or set of circumstances, please send a general message to our firm or a specific message to one of our professionals.