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September 2013 Tip of the Month


According to Webster’s Dictionary, “FORENSIC – Belonging to, used in or suitable to courts of judicature or to public discussion and debate; pertaining to or used in legal proceedings or argumentation." "Forensic accounting” provides an accounting analysis that is suitable to the court which will form the basis for discussion, debate, and ultimately dispute resolution. 

As defined by The Accountant’s Handbook of Fraud & Commercial Crime, “Forensic and investigative accounting is the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of the rules of evidence.  As a discipline, it encompasses financial expertise, fraud knowledge, and a strong understanding of business reality and the working of the legal system.  Its development has been primarily achieved through on-the-job training, as well as experience with investigating officers and legal counsel.”

Forensic accountants are trained to look beyond the numbers.  Because of our training and skills, many companies and their attorneys often use CPAs as experts in such accounting, financial and economic matters. 

One key reason for retaining the expertise of CPAs in doing such due diligence or performing forensic services revolves around our ethical duties and responsibilities.  CPAs must adhere to a rigorous code of ethics for all engagements, which includes the requirement to be objective.  Would you not want to seek the assistance of an expert who follows the AICPA’s Code of Professional Conduct Role 102 requiring that “…CPAs in the performance of any professional service shall maintain objectivity and integrity shall be free of conflicts of interest and shall not knowingly misrepresent facts or subordinate his or her judgment to others?”

 CPAs have a duty to credibly analyze facts within our area of expertise and derive supportable conclusions based on these facts. Forensic accountants are generally well-rounded professionals with broad exposure to many industries and even more business environments.  Still, we go through a constant learning phase, which keeps us forever on our toes. Throughout a forensic engagement, the CPA retained typically wades through voluminous amounts of financial and accounting information.  Much of this data can be confusing and disorganized.  In an entrepreneurial or small business, such data is often absent of traditional accounting controls, which might help to ensure the accuracy of the data provided.  Use of a CPA or forensic accountant seasoned in such engagements must interpret this accumulated data in a logical, reasonable and accurate manner.

Many of us have developed a specific expertise in performing dispute resolution and other consulting services. Clients, as well as the banking, insurance, judicial and legal community, increasingly call upon forensic accountants to provide technical assistance, arbitration or expert testimony on financial accounting matters, business valuations, structuring buy-ins and buy-outs, divorce, estate controversies, insurance claims and other forensic/investigative analysis covering a wide range of topics and industries. Like many of my colleagues, we operate in a supportive capacity to attorneys, judges, adjusters and clients in providing ongoing facilitation in the negotiation and/or litigation process. Forensic accountants assist attorneys to strengthen their cases by clarifying language and economic concepts, preparing useful exhibits and reports, and testifying as an expert witness.

In presenting our findings, forensic accountants share a difficult job. We must exercise all of our professional judgment and skill to maintain an unbiased and fair presentation of the financial facts.  The concept of fairness is a guiding principle and forensic accounting experts must make a conscientious effort to remain objective in our evaluations of information and in our presentation of testimony (even if retaining counsel might desire more one way or the other).  Ask Marty Abo or any of our seasoned forensic accounting colleagues practicing in this arena and we universally chime in that “…we are not advocates except to advocate OUR position”.

Alas, while results are typically stated numerically, the appearance of precision is often displayed but, actually, the exercise of judgment is usually required in most such engagements.  Credible and competent accountants may obtain differing results from the same data because of the frequent need in such financial determinations to select among equally acceptable economic or accounting principles, methods of analysis, techniques and procedures.  Terminology is not sufficiently precise to avoid unintended usage and this can sometimes lead to faulty understanding of accounting positions.

Thought for the day?  Speak to a forensic accountant.  While it may not cost you much just to inquire about a matter, it may cost you more not to!

Some of the more common credentials/designations?

ABV – Accredited in Business Valuation (American Institute of CPA’s)

CVA – Certified Valuation Analyst (National Association of Valuators and Analysts)

CFF – Certified in Financial Forensics (American Institute of Certified Public Accountants)

CFE – Certified Fraud Examiner (Association of Certified Fraud Examiners)

ABO – Call Marty if you’re having trouble figuring this one out.