Common Inquiries About Our Forensic Accounting Work

Forensic accountants are experienced auditors, accountants, and investigators of legal and financial documents that are hired for a myriad of reasons. Forensic accountants typically have extensive training specific to the area(s) in which they specialize, and they often hold various professional designations indicating proficiency in each specialization.

Most forensic accountants are certified public accountants, licensed by their state to provide financial and tax advice. Some are certified fraud examiners, indicating a specific proficiency in fraud investigation and prevention matters.

Some hold business valuation credentials, such as the accredited in business valuation credential, indicating that they have been tested for their proficiency in this area, that they adhere to a set of professional standards for business valuation, and that they meet or exceed ongoing educational requirements. Some hold the certified in financial forensics credential, indicating a certain level of experience in the area of financial consulting related to controversy proceedings.

The forensic accountants at Forensic Accounting Services Team, Inc. have been used in divorces, bankruptcy, insurance claims, personal injury claims, fraudulent claims, construction controversy, contract disputes, trust accounting disputes, and a host of other assignments involving financial, accounting, valuation, and consulting skillsets.

Forensic accountants may be hired to look into suspected fraudulent activity within a company or they may be hired to help a company with fraud prevention. Many forensic accountants work closely with law enforcement personnel and lawyers during investigations and often appear as expert witnesses during trials.

A good forensic accountant is much more than just a good accountant. Any good accountant should be competent in accountancy matters, will produce accurate information compiled under generally accepted guidelines, will act with integrity, and will respect confidentiality.

However, a forensic accountant has a particular aptitude for this type of work. This includes an inquisitive mind, tenacity, and attention to detail, excellent communication skills both written and oral, an ability to deal with a large amount of documentary evidence while working to a tight deadline, a knowledge of relevant law, and experience of court procedures.

Importantly, a good forensic accountant will be able to look at the evidence before him from different standpoints so as to recognize different possible interpretations of that evidence and the implications of those interpretations for the matter at hand. That involves not only objectivity but also skills derived from experience in the field.

In that way, the forensic accountant can make his client aware of both the strengths and potential weaknesses in his case at an early stage. Further work can then be done as appropriate to address areas of weakness.

The role of a forensic accountant in a divorce is largely based on the facts of the case and the level of cooperation between the parties. Typically, a forensic accountant will work very closely with your legal counsel who is typically the "quarterback" of your case.

Commonly, a forensic accountant's first step will be to assist you and your attorney in requesting the appropriate financial information required to calculate the amounts due to you and your soon-to-be ex-spouse.

The second step is a summary review of the requested information to ascertain potential claims for reimbursement or credit, to identify a possible separate property, to identify businesses or business interests that need to be appraised, and to determine whether a marital standard of living analysis may be required in setting the amount of spousal support pursuant to Family Code §4320.

Forensic accountants will also prepare estimates of the possible outcome of a trial. For instance, we can provide a range of spousal and child support estimates based on various scenarios, and we can model the division of property. This is a vital step in determining whether your case can be settled reasonably, or whether the courts, or a private arbitrator, will provide a better opportunity for a fair result.

Forensic accountants do not practice law, but they are very familiar with the California Family Code and relevant appellate cases which provide guidance on the financial issues in divorce. For example, child support is typically determined based on strict guidelines mandated by California Family Code §4050-4055.

However, in certain cases, the Court has the discretion to deviate from the prescribed formula. These deviations typically arise where one spouse is a "high-earner" and the child support amount determined by formula may exceed the Court's perception of what is required for the child to share in the lifestyle of the high-earner.

Another example includes the method of dividing a home that was purchased by one party before marriage. In these instances, there may be a separate property claim or a reimbursement amount owed to the party who used their separate money for the property purchase, the paydown of debt, or for the substantial improvement of the property. There are several appellate cases that provide guidance in this area, as well as Family Code §2640 which sets forth the guidelines for reimbursements to one party in a divorce.

These same issues of ownership may be relevant to your business or professional practice, or to bank and brokerage accounts wherein separate property and community property were commingled. To resolve these issues requires a knowledge of what documents are needed, a methodical approach to the "tracing" of separate property funds, and a working knowledge of relevant statutory and case law. These are the skills that are unique to a forensic accountant.

The "forensic" part of forensic accountant really comes into play when there is suspicion of unreported or undisclosed income and assets. This is an area that the experts at Forensic Accounting Services Team can help, with substantial fraud expertise and certified fraud examiners on staff.

Call us and let us give you a free initial consultation on the financial issues of your divorce. Often we can identify additional claims or other financial issues in your case that are not apparent on the surface.

Income tax returns, financial statements, trial balances, and general ledgers are often the most vital documents to forensic accountants.

Financial statements provide the highest level summary of an entity's financial position and results of operations. Financial statements typically comprise the balance sheet, income statement, statement of owner’s equity, and statement of cash flows.

The balance sheet shows the financial position of a company at a given point in time. It lists the company’s assets, liabilities, and owner’s equity. The income statement shows the results of the company’s operations during a period of time, including a listing of revenues and expenses by category.

The statement of owner’s equity, also known as the statement of retained earnings or the equity statement, reconciles the beginning and ending retained earnings for the period, taking into account net income or losses, contributions of capital by owners, and distributions or dividends paid out to the owners. The statement of cash flows lists the sources and uses of cash, dividing them into operating, investing, and financing activities.

It evaluates the company’s ability to pay its bills and tells us whether the company is using its cash to pay down debt or whether it is adding new equipment or expanding its facilities.

Trial balances list every single account of the company, including the balances at the beginning and end of the period, and a summary of the activity in the account during the period. The trial balance provides somewhat more detail than the financial statements.

On the most detailed level are the general ledgers of a company. General ledgers list every single account of the company (revenue, expense, asset, liability, and equity), including the balances at the beginning and end of the period, and every single entry to each account during the period. These can be very large documents spanning thousands of pages. Often forensic accountants will obtain these documents electronically for ease of use and financial analysis.

Some other financial documents that need to be examined include the following: general journal, sales journal, purchases journal, cash receipts journal, and cash disbursements journal. Even though forensic accountants need to analyze and compare financial statements most cases of fraudulent activity will not be in plain sight.

Most fraudulent activity will be hidden and manipulated to the point that forensic accountants must dig deep into the company, using the financial statements, trial balances, and general ledgers as roadmaps.

Bank statements are also needed in order to investigate a company. The owner’s personal bank statements may be needed as well as the company’s bank statements. Bank statements can be used to verify the information reported in the general ledgers and financial statements.

Unidentifiable disbursements from the account, large cash withdrawals, or unfamiliar recipients can lead to misappropriations, bogus expenses, and unreported income. Sometimes a conspicuous lack of deposits and disbursements compared to the owners' lifestyle can indicate unreported and hidden income as well.

Credit card statements can show evidence that bank statements may not, but once again, the evidence will not be in plain sight. A careful analysis of payees may uncover unsupportable business expenses, a misappropriation of community assets, or a lifestyle far in excess of reported income.

The Association of Certified Fraud Examiners offers the certified fraud examiner (CFE) accreditation for financial professionals involved in fraud prevention, detection, deterrence, and investigation. Individuals must have a bachelor's degree, 2 years of relevant experience, pass a four-part examination, and abide by a code of professional ethics, in order to obtain a CFE. This accreditation requires yearly education in the fields of fraud, accounting, and related material.