FORENSIC ACCOUNTING SYSTEM

What does a Forensic Accountant do?

A Forensic Accountant is often retained to analyze, 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:

 Investigating and analyzing financial evidence;

 Developing computerized applications to assist in the analysis and presentation

of financial evidence;

 Communicating their findings in the form of reports, exhibits and collections of

documents; and

 Assisting 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, a Forensic Accountant must be able
to identify substance over form when dealing with an issue.

How can a Forensic Accountant be of assistance?

A Forensic Accountant can be of assistance in various ways, including:

Investigative Accounting

 Review of the factual situation and provision of suggestions regarding possible

courses of action.

 Assistance with the protection and recovery of assets.

 Co-ordination of other experts, including:

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 o Private investigators;
o Forensic document examiners;
o Consulting engineers.

 Assistance with the recovery of assets by way of civil action or criminal

prosecution.

Litigation Support

 Assistance in obtaining documentation necessary to support or refute a claim.

 Review of the relevant documentation to form an initial assessment of the case

and identify areas of loss.

 Assistance with Examination for Discovery including the formulation of

questions to be asked regarding the financial evidence.

 Attendance at the Examination for Discovery to review the testimony, assist

with understanding the financial issues and to formulate additional questions to
be asked.

 Review of the opposing expert's damages report and reporting on both the
strengths and weaknesses of the positions taken.

 Assistance with settlement discussions and negotiations.

 Attendance at trial to hear the testimony of the opposing expert and to provide
assistance with cross-examination

What types of assignments does a Forensic Accountant perform?

Forensic Accountants become involved in a wide range of investigations, spanning

many different industries.  The practical and in-depth analysis that a Forensic
Accountant will bring to a case helps uncover trends that bring to light the relevant
issues.

Detailed below are various areas in which a Forensic Accountant will often become
involved.

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Criminal Investigations

Forensic investigations often relate to criminal investigations on behalf of police

forces.  For example, a Forensic Accountant may be retained by the R.C.M.P., the
O.P.P., as well as by regional or 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 resulting from a
motor vehicle accident.  A 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
calculating the resulting economic damages.

Business Interruption / Other Types of Insurance Claims

Insurance policies differ significantly as to their terms and conditions.   Accordingly,

these assignments involve a detailed review of the policy to investigate coverage
issues and the appropriate method of calulating the loss.

A Forensic Accountant is often asked to assist from either an insured or insurer's

perspective in the settlement of a case.

Examples of these types of assignments include; business interruptions, property

losses and employee dishonesty (fidelity) claims.

Business/Employee Fraud Investigations

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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

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 a breach of a non-competition
agreement.

Professional Negligence

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;
and

 Loss Quantification.

If the professional in question is an accountant then a Forensic Accountant could be

involved with both perspectives.  If the matter involves some other profession a
Forensic Accountant will normally be retained to perform only a loss quantification.

Mediation and Arbitration

Because of their familiarity and comfort with legal issues and procedures some
Forensic Accountants have sought out special training and become involved in
alternative dispute resolution (ADR).

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ADR services include both mediation and arbitration and are designed to help
individuals and businesses resolve disputes with minimal disruption and in a timely
fashion.

What would be a typical approach to a Forensic Accounting assignment?

Each forensic accounting assignment is unique.  Accordingly, the actual approach

adopted and the procedures performed will be specific to it.  However, in general,
many Forensic Accounting assignments will include the steps detailed below.

Meet with the client

It is helpful to meet with the client to obtain an understanding of the important facts,
players and issues at hand.

Perform a conflict check

A conflict check should be carried out as soon as the relevant parties are established.

Perform an initial investigation

It is often useful to carry out a preliminary investigation prior to the development of a

detailed plan of action.  This will allow subsequent planning to be based upon a more
complete understanding of the issues.

Develop an Action Plan

This plan will take into account the knowledge gained by meeting with the client and
carrying out the initial investigation and will set out the objectives to be achieved and
the methodology to be utilized to accomplish them.

Obtain the relevant evidence

Depending on the nature of the case this may involve locating documents, economic
information, assets, a person or company, another expert or proof of the occurrence of
an event.

Perform the analysis

The actual analysis performed will be dependent upon the nature of the assignment
and may involve:

 calculating economic damages;

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  summarizing a large number of transactions;

 performing a tracing of assets;

 performing present value calculations utilizing appropriate discount rates;

 performing a regression or sensitivity analysis;

 utilizing a computerized application such as a spread sheet, data base or

computer model; and

 utilizing charts and graphics to explain the analysis.

Prepare the report

Often a report will be prepared which may include sections on the nature of the
assignment, scope of the investigation, approach utilized, limitations of scope and
findings and/or opinions.  The report will include schedules and graphics necessary to
properly support and explain the findings.

Who retains a Forensic Accountant?

Forensic Accountants are often retained by the following groups:

 Lawyers;

 Police Forces;

 Insurance Companies;

 Government Regulatory Bodies and Agencies;

 Banks;

 Courts; and

 Business Community.

What should I consider when retaining a Forensic Accountant?

The following issues should be considered on retaining a Forensic Accountant:

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  The experience and qualifications of the Forensic Accountant;

 A Forensic Accountant should be retained as early as possible in order to obtain

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, a 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 a Forensic Accountant is 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; and

 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.

What characteristics should a Forensic Accountant possess?

A capable Forensic Accountant should have the following characteristics:

 curiosity;

 persistence;

 creativity;

 discretion;

 organization;

 confidence; and

 sound professional judgment.

A Forensic Accountant must be open to consider all alternatives, scrutinize the fine
details and at the same time see the big picture.  In addition, a Forensic Accountant
must be able to listen effectively and communicate clearly and concisely.

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FORENSIC ACCOUNTING

LITIGATION SUPPORT

FORENSIC ACCOUNTING DEMYSTIFIED

Verbal Introduction

Forensic Accounting has existed for many years.  With the growing complexity of the
business environment and the growing number of business related investigations,
Forensic Accounting professionals are increasingly asked to assist in the investigation
of financial and business related issues.

What is Forensic Accounting?

Forensic accounting, sometimes referred to as
investigative accounting, is a unique career field that
combines accounting with information technology. A
forensic accountant uses sophisticated computer
programs to analyze financial data and find evidence
that would be legally valid during a court proceeding.

Forensic accountants are often asked to review

financial records for mergers and acquisitions. They
may also serve as advisers to a corporation’s audit

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committee or work to resolve shareholder disputes
within a company.

Objective verification is the primary goal of forensic

accounting. For this reason, many forensic accounting
professionals are asked to testify in court cases as
expert witnesses for either the prosecution or the
defense. Forensic accountants can work in both civil
and criminal court cases. In a civil case, a forensic
accounting professional may be asked to calculate
economic damages that occurred as the result of a
breach of contract or provide insight into a case based
on a claim of professional negligence. In a criminal
case, a forensic accountant may be asked to present
evidence of insurance fraud, identity theft, money
laundering, embezzlement, price fixing, stock market
manipulation, or other related offenses.

Certified Forensic Accounting

To be successful as a forensic accounting professional,

you must be detail oriented, persistent, ambitious, and
highly organized. Forensic accounting also requires a
great deal of creativity, since you must often explain
complex financial concepts to an audience that lacks
basic accounting knowledge.A forensic accounting
professional typically has a bachelors or masters
degree in accounting supplemented by additional
courses in forensic accounting. However, as the field
continues to grow in popularity, many colleges and
universities are redesigning their accounting programs
to provide additional education for students interested
in forensic accounting careers. In fact, some schools are
adding courses to help students specialize in insurance
claims, fraud cases, or other specialized areas of
forensic accounting.

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 A forensic accountant may also be known as a Certified
Public Accountant or a Certified Fraud examiner. A
Certified Public Accountant has met his/her state’s
licensing requirements and has successfully passed the
Uniform Certified Public Accountant Examination. A
Certified Fraud Examiner is a member of The
Association of Certified Fraud Examiners and has
completed this professional association’s rigorous
certification requirements.

Forensic accounting
Forensic accounting is the specialty practice area of accountancy that describes engagements
that result from actual or anticipated disputes or litigation. "Forensic" means "suitable for use in
a court of law", and it is to that standard and potential outcome that forensic accountants
generally have to work. Forensic accountants, also referred to as forensic auditors or
investigative auditors, often have to give expert evidence at the eventual trial. [1] All of the larger
accounting firms, as well as many medium-sized and boutique firms, have specialist forensic
accounting departments. Within these groups, there may be further sub-specializations: some
forensic accountants may, for example, just specialize in insurance claims, personal injury
claims, fraud, construction, or royalty audits.

Categories

Engagements relating to civil disputes may fall into several categories: calculating and
quantifying losses and economic damages, whether suffered through tort or breach of contract;
disagreements relating to company acquisitions—perhaps earn outs or breaches of warranties;
and business valuation. Forensic accountants often assist in professional negligence claims where
they are assessing and commenting on the work of other professionals.

Forensic Accountants are also engaged in marital and family law of analyzing lifestyle for
spousal support purposes, determining income available for child support and equitable
distribution.

Engagements relating to criminal matters typically arise in the aftermath of fraud. They
frequently involve the assessment of accounting systems and accounts presentation—in essence
assessing if the numbers reflect reality.

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Forensic accountants

Forensic accountants may be involved in recovering proceeds of crime and in relation to

confiscation proceedings concerning actual or assumed proceeds of crime or money laundering.
In the United Kingdom, relevant legislation is contained in the Proceeds of Crime Act 2002. In
India there is a separate breed of forensic accountants called Certified Forensic Accounting
Professionals. Some forensic accountants are also Certified Forensic Accounting Professionals,
Certified Fraud Examiners, Certified Public Accountants, Chartered Accountants or ACCAs.

Forensic accountants utilize an understanding of business information and financial reporting

systems, accounting and auditing standards and procedures, evidence gathering and investigative
techniques, and litigation processes and procedures to perform their work. Forensic accountants
are also increasingly playing more proactive risk reduction roles by designing and performing
extended procedures as part of the statutory audit, acting as advisers to audit committees, fraud
deterrence engagements, and assisting in investment analyst research.

"While Forensic Accountants ("FAs") usually do not provide opinions, the work performed and
reports issued will often provide answers to the how, where, what, why and who. The FAs have
and are continuing to evolve in terms of utilizing technology to assist in engagements to identify
anomalies and inconsistencies. It is important to remember that it is not the Forensic Accountants
that determine fraud, but instead the court." (David Malamed, Forensic Accountant, Toronto
Ontario)

AIMS & SCOPE

The Journal of Forensic Accounting: Auditing, Fraud, and Risk (JFA) is dedicated to
promoting excellence in forensic accounting. The journal is an independent
international forum for the publication of research dealing with the models and
methodologies of investigative and forensic accounting, seeking to establish a balance between
theoretical and empirical studies, and striving to foster practitioner-academic dialogue and
collaboration. Papers spanning the full spectrum of assurance, attestation and advisory services
provided by professional public accountants engaged within a strict legal framework are
solicited. The focus of the journal is on the evidentiary nature of accounting data, and topics
include accounting fraud and forensic auditing; compliance, due diligence, and risk assessment;
detection of financial statement misrepresentation and tax evasion; bankruptcy and valuation
studies; GAAS, GAAP and SEC violations or accounting irregularities; non-standard entries,
structured transactions, records tampering, and earnings management (non-neutral financial
reporting); fair presentation and disclosure transparency; audit quality review and evaluation;
transaction tracing, reconstruction and accountability; litigation support and dispute avoidance;
extended procedures within a statutory or forensic audit environment; money and information
laundering; and the underground economy. In addition, papers on particular techniques and
technologies, and preventative controls and improved standards are invited. Multi-disciplinary
research capable of informing the dialogue is welcomed. Submitted research should be grounded
in real-world business risks, disputes, or litigation issues faced by practitioners and entity
stakeholders. All research articles are reviewed.

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References

Litigation Support - Accounting For Damages, A Framework for Litigation Support

by Ronald T. Smith and Cynthia R.C. Sefton published by Carswell (ISBN 0-459-
55789-0) available at 1-800-387-5164.

Investigative Accounting - Fraud Examiners Manual (U.S. and Canadian Editions

available) published by the Association of Certified Fraud Examiners available at 1-
800-245-3321.

JOURNAL OF FORENSIC ACCOUNTING - Auditing, Fraud & Taxation -

Published by R.T. Edwards Inc. available at 215 233-5046

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