Forensic Accounting in Litigation
In a business litigation matter, a key component is often the forensic accounting of financial statements, reports and records (collectively known as “the books”) of a business. The facts of a particular case may require gaining insight into the financial condition of an entity or perhaps investigating financial transactions and other events prior to and during a triggering event. A forensic accountant incorporates accounting, auditing and investigative skills. He or she can see “beyond the numbers” to ascertain the financial or business state of affairs in any given situation. A law firm or court may retain a forensic accountant to analyze, interpret and summarize complex financial issues. The forensic accountant then presents his or her conclusions through expert testimony or in written reports or exhibits.
Specific Duties
Among the tasks that a forensic accountant may perform with respect to an engagement are:
- Calculating and analyzing the damages incurred by the client or opposing party
- Tracing assets
- Reviewing case documentation and suggesting specific ways to address the issues
- Assisting with asset recovery and preservation
- Identifying areas of loss and quantifying the magnitude of a loss
- Assisting with discovery proceedings
- Conducting a review of the opposing party’s expert reports to determine the strengths and weaknesses of their positions
- Assisting with developing the approach to cross examination of the opposition’s expert(s)
- Helping obtain the documentation needed to support or fight a claim
Red Flags
IInvestigating the underlying documents is what allows the forensic accountant to uncover the misappropriation of assets. Perhaps transactions in an off-balance sheet account are occurring and not making it onto the books of the business. An unexplained general business ledger entry may tip off the existence of such an account. Verifying approved vendors, cross-referencing suspicious entities to employees’ addresses and reviewing check-authorization processes may also lead the forensic accountant to uncover wrongdoing.
Types of Engagements
Forensic accountants are used in a wide variety of cases, such as:
- Matrimonial matters involving hidden assets and/or unreported income
- Matters involving the misappropriation of assets, including intellectual property rights
- Determinations relating to the legitimacy of financial transactions, including unreported income, diversion of income and fictitious or improper expenditures or liabilities
- Allegations of inappropriate application of accounting principles
- Business entity valuation where the income of the entity may not be properly reported
- Matters involving allegations of employee embezzlement
- Analysis of a company’s financial records relating to shareholder disputes
- Determination of insurance claims, including the validity of business interruption, property loss and fidelity claims
- Due diligence reviews, business intelligence gathering and asset identification and recovery
- Quantifying economic loss from product liability claims, contract disputes and construction claims
We Can Help
Our professionals are well-versed in forensic accounting. We can provide professional financial and business services that your firm needs. We’d be happy to discuss with you how our firm’s qualifications and experience can benefit your clients. Contact us today at 800.469.7206 or email.
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Since technical information is presented in generalized fashion, no
final conclusion on these topics should be made without further review.
For additional information on the issues discussed, please contact
Steve Riddle,
Tom
Thieme,
Rex Collins,
Ken
Stalcup or
Doug
Ayres
of our
Litigation, Valuation & Forensic Team.
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Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
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