Overview

Forensic Accounting is accounting work prepared for litigation, or other "robust debating" purposes.

There is an expectation that Forensic Accounting work will be challenged - and probably vigorously. Consequently, the work must be conducted so as to:

Produce a credible and highly professional result by any objective standards and to,
Anticipate the nature and substance of any likely challenges (ie: the Forensic Accountant must perform his analyses and develop his opinions after considering the perspectives of all parties, not just the engagement party).

Forensic Accounting Fundamentals

Australian courts are imposing increasingly onerous requirements and responsibilities on experts - obliging them to stress and maintain their credibility, independence and objectivity under all circumstances.

Whenever a Forensic Accountant works in a formal litigation or dispute resolution environment there are actually two distinct roles required of them. Each role is a function of the purpose for which they are engaged at a specific point in time. This purpose can and often does change during the course of working on a matter.

Therefore, at any given point in time, a Forensic Accountant may be required to investigate, analyse and interpret financial information for one of two major purposes:

1. Assess and Advise

The Forensic Accountant is required to help clients and/or legal advisers to understand, consider and respond to a situation - so they can negotiate or litigate best possible outcomes.

This role requires serious professional rigour and objectivity however, the accountant is engaged primarily to advise and assist the client by assessing the strengths and weaknesses of both their own and the opposing side’s financial / commercial arguments.

In this situation the Forensic Accountant is a team member who is not required, or expected, to be independent although they are, of course, always required to be professionally objective.

2. Produce an Independent Expert's Report

Forensic Accountants are required to produce reports and to deliver evidence for civil and criminal litigation, commercial and other negotiations, dispute resolution processes, Royal Commissions and Regulators' Inquiries and Investigations.

These reports and related evidence must be based on relevant and admissible evidence. Expert opinions must be formed by applying appropriate professional training and experience to the rigorous analysis and evaluation of the relevant evidence.

There is always a danger that this role will be confused with the advisory role described above, even though they are fundamentally different.

The reporting role often commences after the advisory role has been completed, eg: when matters are not resolved through negotiation or pre-trial processes. In this work, the Forensic Accountant is required to inform the court or tribunal of their expert opinion, based on the facts they have established to their own satisfaction through a balanced and objective process of analysis, interpretation and opinion-forming, based on consideration of the admissible evidence.

The Forensic Accountant’s opinion, both written and/or verbal, must be delivered objectively to the court or tribunal “without fear or favour”.

There is also a formal expectation, often expressed by the courts, that these reports and opinions will be prepared and delivered independently.

In the fullest sense of the word "independent" this is not practically achievable, since the Forensic Accountant is usually engaged, informed and paid by only one side to the dispute.

We therefore value and practise professional objectivity at all times and work hard to ensure that every report we produce demonstrates the highest levels of independence (neutrality and lack of bias) that can practically be achieved.

Credibility and Effectiveness

The Forensic Accountant’s credibility and effectiveness in all litigation and dispute resolution processes depends on their ability to manifest and maintain a number of inter-related attributes:

Professional competence. This is a composite of education, formal qualifications, professional training, relevant experience and actual ability to do the required task.
Authority. Depends on communication skills and clarity of expression and explanation (written and verbal), supported by rigorous professional objectivity and apparent independence.
Integrity. Similar to requirements for establishing and maintaining “Authority”, with more emphasis on personal attributes - particularly honesty - matched with a willingness to help the court or tribunal to do its job by providing unbiased and non-vexatious information and responses.
Objectivity and Independence. In addition to the foregoing attributes the Forensic Accountant must avoid adopting, or being drawn into, the role of advocate for his or her client.

Forensic Accountants - vs - “Ordinary” Accountants

There is a fundamental difference between ordinary accounting opinions and forensic accounting opinions:

Ordinary opinions are prepared with reasonable professional care and skill, usually for specific compliance or commercial purposes.

Forensic opinions are prepared as expert opinions - in the expectation they will be used and tested as expert evidence. They must be clear, robust and capable of withstanding vigorous scrutiny and challenge. In addition, they must comply with the rules of evidence and the rules of the specific court or tribunal for which they were prepared.

As well as possessing and being able to use to good effect, relevant accounting skills and knowledge, Forensic Accountants must understand and be able to respond appropriately to the language, thought processes and expectations of clients, litigation lawyers, barristers, judges and the legal system in general.

Forensic Accounting is highly demanding work. It can only be responsibly performed by appropriately qualified, trained and experienced accountants with the competence, self-assurance and authority to maintain their objectivity and equanimity under the most demanding cross examinations.

In practice, very few accountants do this job well. Many go willingly into the witness box once, there are few who go there willingly more often!

Team Approach to Litigation

For judges and lawyers, as for most of the population, the principles and practices of accountancy are “a dark and perilous art”. We believe that it is, therefore, important to adopt a team approach to achieve optimal results in most financial and commercial disputes.

Many professionals act as though they alone are responsible for delivering the final solution to their clients. The reality is that in the heat of battle, even small commercial disputes get mired in legal process, commercial damage and general confusion. In such circumstances it’s all too easy to work harder, rather than smarter. Then both the fact and the appearance of zeal and diligence often replace wisdom - sometimes to the enormous detriment to the client's interests.

We believe in a “horses for courses” philosophy, which means pointing the right professional at the right part of the dispute to apply the most appropriate expertise to achieve the best possible results.

Elements of Commercial Disputes

Most commercial disputes have two main components – liability and quantum:

Lawyers manage liability issues, including: interpreting and applying the law to the facts and considering the operation and effect of legal rights and obligations on the parties in dispute.
Forensic Accountants manage quantum issues, including: quantification of loss and damage, financial investigation and analysis and interpretation of financial information. In addition, we have recognised professional expertise in specific technical areas, such as valuing business and partnership goodwill.

Lawyers don't study law to practice as accountants and Forensic Accountants don't study law to practice as lawyers. In fact, we can't do so without breaking the law! We did our study so we could work more effectively with lawyers, as a part of the team.

The moral: Litigation is a team activity. As with any team, you must match available skills with necessary jobs. By using a Forensic Accountant to deal with quantum issues, you maximise your chances of winning / achieving optimal results.

Benefits

The litigation team contains a properly balanced mix of professionals, with each member playing to their respective strengths, for the ultimate benefit of the client.

Enhanced team performance delivers:

Better results.
Greater client satisfaction with the litigation process.
Increased client loyalty.
Maximum likelihood of future referrals from the same client.

Forensic Methodology

To provide my clients with the highest possible levels of service I have developed a versatile and effective forensic methodology, which can be and is applied to almost all of my assignments.

This methodology has been developed as a direct result of many experiences gained over the past twenty years.

For full details, please see: Forensic Methodology