Basics of Forensic Accounting and Its Role Litigation Cases

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By gibsonjones

When we hear the term Forensic, immediately some crime-based movie or TV show comes to our mind. However, accounting advisory does not primarily involve the investigation of criminal activity. Nonetheless, it slightly involves investigating criminal fraud charges, focusing on the financial problems rather than the criminal aspects. Today, more forensic accountants are taking the stand to testify in court and answer questions about their findings and suggestions. With such a broad area to consider, here are more details on how it applies in litigation cases.

What is Forensic Accounting?

Forensic accounting combines accounting, auditing and investigation skills to analyse a business or individual’s financial data. These allied activities help create reliable information and opinions that attorneys can use in litigation. Forensic accountants investigate financial crimes on behalf of financial institutions, insurance companies and law enforcement agencies to find evidence. These accountants stand in as expert witnesses using financial records as legal evidence to testify.

What do Forensic Accountants Do?

Forensic accountants in litigation are involved in a few roles:

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  • Consulting Expert

A consulting expert works with the litigation team to analyse facts and advice on proper ways of discrediting strategies of an opposing expert. They identify strong and weak areas of a case to determine the right approach for presenting facts in a trial.

  • Expert Witness

An expert witness is knowledgeable, skilled, trained or educated to give technical and scientific opinions about presented evidence. Forensic accountants can only testify in court when a party informs all involved parties by presenting qualifications and opinions of the expert.

  • Master and Special Master

A special master is a financial expert who analyses the facts in dispute. They only handle highly financial matters with technical accounting that only forensic accountants can understand.

Uses of Forensic Accounting in Litigation Cases

  • Discovery Assistance

A forensic accountant uses documented evidence in business litigation to prove and discredit certain issues. They can easily guide litigation teams by helping them find, understand and explain the evidence within the documentation. Forensic accountants can also go through the business and financial data to help litigation teams with depositions of financial personnel.

  • Developing Strategies

Forensic accountants may be called upon as consulting experts for litigation to suggest practices that help businesses with arising issues in the case. These professionals will identify errors, flaws or inconsistencies within the financial data and suggest alternatives using proper analysis.

  • Fraud Examination

Forensic accounting is used to interpret information in fraud cases to identify loopholes and prevent future fraud. A forensics accountant must understand the legal implications of the fraud examination and manage financial information. Forensic accounting also applies to identifying fraud schemes, fraudulent transactions and fraud risk assessments.

  • Resolving Business Valuation Disputes

Forensic accounting applies in analysing the economic value of a business and financials to assist litigants in valuing a business in a dispute. This practice is common among businesses with bad valuations due to fraud or failure.

  • Computation of Damages

Calculating damages is crucial in commercial litigation in case of lost cash and property. Forensic accounting helps teams understand damage computation based on their case and whether the said damages are factual or basically opinions. In addition, forensic accountants use projections and assumptions of the situation if an involved party acted differently.

Forensic accounting provides the expertise and knowledge for legal actions involving financial and business documents. With a proper understanding of the situation, forensic accountants assist in litigation in the early stages of case development to guarantee a better outcome. In addition, forensic accounting gives a client peace of mind by knowing all the facts about a case.

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