FORENSIC ACCOUNTING AND LITIGATION SUPPORT
By: Edward S. Sachs CPA/ABV, CrFA
When you picture your accountant do you think dull, unimaginative, conservative and lifeless? Most people picture their accountant sitting behind his or her desk, bank statements, tax returns and other records stacked high, punching away at their calculator. They spends hours upon hours crunching numbers in order to prepare your tax returns or tell you that your financial statements are accurate.
Now picture your accountant looking more like Sherlock Holmes with his trademark magnifying glass, or Columbo with his trench coat and witty interrogation ways, or Jordan Cavanaugh the stubborn investigative medical examiner on "Crossing Jordan". That is the look of the newest breed of accountant known as the forensic accountant.
In today's litigious society, many of the matters being brought before the judicial system have a significant issue relating to accounting. Divorce cases require assets identification and valuation, lifestyle analysis, and income determination. Contract disputes need calculation of losses or determination if fraud exists. The parties to the legal dispute and the Courts often need the assistance of an expert to sort out, calculate and explain these matters. That is the role of the forensic accountant in providing litigation support.
Litigation support is the practice of providing assistance of an accounting nature in investigating and assessing the financial merits and integrity of a lawsuit or legal dispute. It deals primarily with issues related to the quantification of economic damages or calculation of economic circumstances. The forensic accountant draws on various resources to obtain relevant financial evidence and to interpret and present that evidence in a manner that will assist the parties in better understanding the issues. Litigation support is the integration of accounting, auditing and investigative skills to provide an analysis suitable for use by the court to form the basis for dispute resolution.
The increased complexity of today's business environment has enhanced the need for the forensic accountant. Many companies are reacting to concerns that arise from employee dishonesty, mismanagement by company executives and tampering of the financial statements. One need only look at recent headlines regarding Enron, MCI-WorldCom and Tyco to see the role that the forensic accountant will play in the future of our economy. It will be the job of the forensic accountant to investigate and uncover the fraudulent behavior that seems rampant in corporate America.
The growing field of litigation support has led many accounting firms and accountants into new areas of expertise. No longer is it enough just to be a Certified Public Accountant.
Specialization in areas of fraud accounting, forensic examination and business valuation have led to such designations as the Certified Fraud Examiner, the Certified Forensic Accountant, the Certified Valuation Analyst and the Accredited in Business Valuation designation. Accountants are spending hundreds of hours studying the unique techniques required in these disciplines.
The forensic accountant's role in litigation support includes six areas of service:
- providing assistance in obtaining documentation necessary to support or refute a claim,
- review relevant documentation to form an initial assessment of the case,
- assist legal counsel with depositions including the formulation of questions regarding the financial evidence,
- attendance at depositions, hearings and trials to provide assistance with questioning and cross-examination,
- review of opposing expert's reports and exhibits and helping counsel to understand the issues,
- assistance with settlement discussions and negotiations.
The ever-growing field of litigation support provides the legal and business community with fraud examinations, business valuations, income analysis, structured settlements, asset searches, lost profits and damages, contract dispute resolution, personal injury calculations, and determination of wrongful death and wrongful termination damages.
The forensic accountant is being called upon to apply special procedures, outside the normal scope of accounting and auditing, to detect a wide variety of fraudulent conduct, from discovering misappropriation of funds or assets, to assisting investors defrauded in the course of commercial transactions.
The business valuation expert is being sought to value businesses and ownership interests in a variety of arenas including divorce, bankruptcy, contract matters, business dissolutions and shareholder disputes.
The calculation of business economic losses caused by contract disputes, construction claims, product liability claims and losses stemming from breach of contracts require the services of the forensic accountant. More and more, insurance companies are turning to forensic accountants, to verify the validity of claims made.
No longer will we view our accountant as the quiet, shy, unassuming bean counter hiding behind a calculator and an IRS manual. Today's forensic accountant fills a vital role with qualities including curiosity, persistence, creativity, discretion, organization, confidence, sound professional judgment and succinct communication skills. These qualities, along with their accounting knowledge and skills and investigative mentality allows the forensic accountant to go beyond the bounds of generally accepted accounting and auditing standards to become an invaluable part of the litigation team.
