Should I hire a forensic accountant?

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.

While many of our engagements are performed in the arena of litigation, forensic accounting services are also useful by those who don’t have law degrees. If you’re searching for an objective expert witness, a mediator, a trustee, or a consultant, Sage Forensic Accounting may be able to help.

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.

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.

The term investigative accounting is often used interchangeably with forensic accounting. An investigative accounting assignment could include an investigation of fraud allegations or employee theft, insurance fraud, or tracing and dividing assets in divorce.

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.

"Forensic", according to the Webster's Dictionary means, "Belonging to, used in or suitable to courts of judicature or to public discussion and debate."

"Forensic Accounting", provides an accounting analysis that is suitable to the court which will form the basis for discussion, debate and ultimately dispute resolution.

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.

Typically a forensic accountant is hired for a specific purpose, such as calculating damages, tracing and dividing assets, or valuing a business. Depending on the nature of the engagement the forensic accountant chosen should have the education, work experience, and certified credentials to withstand the scrutiny of the courtroom. Common credentials to look for include the following:

• CPA - Certified Public Accountant,
• ASA - Accredited Senior Appraiser,
• CFE - Certified Fraud Examiner,
• ABV - Accredited in Business Valuation,
• CITP - Certified Information Technology Professional, and
• CFF - Certified in Financial Forensics.

Forensic accounting firms often are retained to provide litigation support to the legal counsel of a particular party. The accounting firm would provide assistance to the legal counsel in matters involving financial or accounting information such as quantification of economic damages, lost business value, or fraud investigations.

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 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.