"The requirement for a forensic accountant is often associated with court proceedings whether they are civil or criminal. However, there are many situations whereby a client may wish to carry out a forensic review", Emma Cadden, Senior Manager in Forensic Accounting
1. What is a forensic accountant?
The role of the forensic accountant is more and more a familiar part of legal proceedings globally. In Ireland, we have seen that one impact of the recession has been a significant increase in the level of litigation, both civil and criminal cases, with financial consequences. As part of many legal proceedings the plaintiff and defendants legal teams retain expertise particular to their case, from construction experts to medical professionals and in financial matters, forensic accountants. However, the use of the skills of a forensic accountant is not limited to legal cases. This article seeks to explain the role of the forensic accountant and their very particular skill set.
Forensic accounting is a specialised area of accountancy and the forensic accountant provides accounting skills in civil and criminal cases but also non-legal related investigations. They use their professional expertise in assignments involving, but not limited to:
- Calculation of loss of economic benefit
- Financial investigations
- Asset tracing
- Valuations, and
- Dispute resolution
The forensic accountant’s skills range from the more general skills applied daily by accountants such as business knowledge, interpreting financial information, specific industry knowledge, legislation, accounting standards and maintaining independence. But, the forensic accountant also possesses more specific skills such as information gathering, attention to detail, information preservation, investigating potential fraud, dispute resolution, issues arising in family law and understanding legal processes, to name but a few.
These skills ensure the forensic accountant can advise their client on the most appropriate approach to financial matters, what information is required, the consequences of certain actions and ultimately produce a report to their client or, if required, the courts.
Where the client requires a report for court, that report is independent and outlines the facts of the case and given those facts the forensic accountants develops his/her own opinion on the subject in dispute. In these circumstances the forensic accountant can act as an expert witness to the court.
2. Who retains a forensic accountant?
The requirement for a forensic accountant is often associated with court proceedings whether they are civil or criminal. However, there are many situations whereby a client may wish to carry out a forensic review in advance of deciding whether to take civil or criminal action or simply to establish / quantify where a suspected breach of trust or offence has occurred.
Examples of those who may retain forensic accountants include:
- The State
- Corporate entities
- Public sector organisations
- Private individuals.
3. At what point in a process should a forensic accountant be retained?
There is no simple answer to this question as forensic accountants can be requested to carry out investigations and reports at any stage of a process. However, it is recommended that as soon as it is recognised that there may be a need for a forensic accountant, an expert in the area should be retained. By involving the forensic accountant at an early stage, the client can ensure that in the stages of preparing the Statement of Claim and Request for Discovery in legal proceedings or, in any assignment, to ensure the preservation of information that the appropriate process is adhered to.
In situations where the case is time sensitive and in particular if fraud is suspected the careful planning and execution of a plan to ensure that the most complete records can be maintained and accessed can be imperative to a case.
As outlined earlier, the role of the forensic accountant is broad and involves a variety of skills from those core accountancy skills such as financial reviews and calculation of loss of earnings to conducting interviews, assisting with the Discovery process, preparing expert witness reports and giving evidence in court.
In non-legal assignments the output of an investigation is generally in a report format presented to the client for their use only, for example, for a business valuation or an investigation into financial irregularities. In many instances this report can be the first step towards legal action and the forensic accountant will prepare the report with that in mind.
The output of the forensic accountant in a legal case will be very specific and tailored to be presented in a format suitable for court proceedings to provide litigation support. This report type is referred to as an Expert Witness Report and the accountant is often required to attend court as a witness to allow the examination of his or her findings by both parties in the matter.
The court will begin the process of examination by requesting an understanding of the expertise of the witness to ensure they are sufficiently qualified to offer their opinion to the court. Furthermore, it is not unusual for the opposing party to have an expert witness to offer their expert opinion to also be examined in court.
The expert witness report can be a very useful document in the normal course of proceedings and more specifically it can often identify a particular angle in a court case or establish a monetary figure to items in the Statement of Claim, e.g. the value of a business, calculation of loss of earnings, etc.
An area which is becoming of increasing interest is the area of asset tracing. These assignments can begin as a review but often result in court proceedings. Asset tracing is a very skilled and specialised area of forensic accounting. The output for which is a report and would normally include the terms under which the accountant was retained, the work carried out, the methodology of research and the findings and conclusions. These reports can be prepared for legal and non-legal cases. Asset tracing is a very useful tool for solicitors, banks, etc. to conduct an investigation into the assets of an individual or business.
This is particularly relevant for parties unwilling to disclose their statement of net worth or those not making themselves available in the normal course of business or a specific investigation. The use of an expert with cross-jurisdictional links can ensure the widest net is thrown in the investigation. Caution is required though in respect of the depth of the asset trace which needs to be within the boundaries of the law in the jurisdictions it is carried out.
Overall, the forensic accountant should be independent, qualified to carry out the assignment, methodical in their approach and objective.
Emma Cadden ~ Chartered Accountants Ireland