Working With Expert Forensic Accountants

By Paul J Vincent FCA 

There is a big possibility that at some stage in your life you may need to engage, or at least be exposed to, the work of a forensic accountant.  Knowing what we do and how we go about doing it will help you get the most out of your forensic accountant experience.

Essentially, forensic accountants are engaged in actual or anticipated disputes to analyse facts presented, conduct analysis and undertake further investigations to unearth further facts.  These facts, (and any assumptions where necessary) are then used to reach a conclusions.  These conclusions are delivered in the form of a written opinion in a report and often these reports are tendered as expert evidence in various Courts or Tribunals.  Needless to say that the rigour that goes into producing such a report is necessarily significant as there is a good deal of scrutiny by those who ultimately rely upon the report and those opposing experts who task it is to critique the report.

Here are just some of the areas where you will see forensic accountants engaged:

  • Business valuations
  • Insurance claims
  • Identifying and valuing assets in marriage breakdowns
  • Estate litigation
  • Commercial litigation
  • Financial investigations
  • Fraud and identity theft
  • Intellectual property theft
  • Forensic technology

Anywhere there is dispute over money or property, a forensic accountant can help.

OUR DUTY AND OUR OBJECTIVE

General Duty

When called upon to give expert evidence, all Courts now impose on us a Rule that we as experts have an overriding duty to assist the Court on matters relevant to our area of expertise.  We are not an advocate for any party.  Our role is to provide the Court with opinions and interpretations of factual information based upon our expertise in a subject area which is outside of the knowledge, skill or experience of the Court and which falls into the category of Expert Evidence.  I will leave for another day the very important topic of what qualifies as expert evidence.

Primary Objective

Given that we operate within an adversarial legal system, our success and ultimate reputation as experts is paramount to achieve longevity.  In matters where each party appoints an expert, one opinion will be preferred over the other.  In matters where a single expert is appointed, ones reputation is still at risk.  In every engagement it is the high degree of scrutiny that makes Forensic Accounting work both extremely demanding while at the same time personally satisfying.

Our success in our chosen field is entirely dependent upon our ability to come to a conclusion or conclusions that are transparent, based upon proven facts or reasonable assumptions and presented in a way that make it easy to understand.  I would suggest that whilst recognising my overriding duty to the Court, when I am engaged in a matter it is my primary objective to have the Court prefer my opinion over that of an opposing expert.

The key to any successful forensic engagement falls back to the two P’s, Proof and Presentation.  These two things will determine whether your expert has succeeded in helping you and the Court understand the evidence and more importantly, presented in such a way that it is preferred.

PROOF

It is trite to say that without proper proof, expert findings and opinions will be of little use to the Court (or any other user).  However it is surprising to see how often even experienced experts try to slip in a conclusion that is unsupported by adequate proof.

Here is my step by step guide for building the proof.

Receive Proper Instructions

Before an expert is instructed, it is useful for the instructing party to understand what is required.  In many cases, identifying what is required is complex and requires collaboration with the expert prior to settling on the instructions.

As the instructions need to be disclosed to the parties it is often preferable to get them right the first time.  After consensus is reached regarding the instructions, then a proper detailed engagement letter can be prepared.  There should be no doubt as to the expert’s task.

Understand the Engagement

Often, an expert’s involvement forms only a small part of the case at hand and as such, it is easy for them to form a narrow focus on only those matters for which they are engaged to address.  In some cases, where costs and time allow, it is worth the effort to gain a broader understanding of the entire case in order to see where the expert evidence fits into the case as a whole.  Things that may not seem relevant to your instructing party may well be an important factor in the expert’s ultimate opinion.

Plan the Collection of Documents and Data

This is one of the most important steps in the proof process.  Again, with the greatest respect to our instructing lawyers, it is unlikely that the expert will ever be provided with all the relevant documents and information in the first instance.  In fact many briefs contain a good selection of irrelevant documents.

The early securing of relevant documents is vital for two reasons.  Firstly, the earlier you have all the relevant documents the more time you have to analyse them and consider their importance.  Secondly, parties in the dispute become more and more reluctant to provide documents as the matter progresses and in many instances, it requires a Court order to have further documents provided.   It is generally the case that the documents which are the most difficult to obtain are the ones which are the most important to have.  Persistence is the key.

One more important matter to be aware of is that it is never too late to gather documents and information. Sometimes a one page document discovered at the eleventh hour can make all the difference to the case.  Again persistence is the key.

Analyse and Summarise

This is the stage of the engagement we produce big spreadsheets with lots of numbers.  It is important to understand one very important fact – in most cases I will be the only person who really understands those schedules.

Lawyers, Barristers and the Courts will rarely understand the detailed schedules prepared by an expert in any field.  Nevertheless, it is absolutely vital that each detailed schedule produced is well designed and clearly sets out the sources of the data used and the calculations contained in them.  It is also vital that you explain the purpose of each schedule very clearly.  Although many others may not understand how they are constructed, they will certainly understand why they have been prepared and how they fit into your report.  It will be up to the opposing expert to examine their construction.

It is useful ensure your expert provides simple less cluttered summaries of the results.  Very few people can look at a page of numbers and feel comfortable.  Summary schedules are a good way to direct readers to key numbers without being to overwhelming.  If needs be, they can refer to the detailed schedules if they so desire.

Identify Variables

When forming an opinion on the numbers, there will most certainly be assumptions made with respect to certain variables implicit in the financial model.  Identify these variables and ask your expert to provide alternatives should the evidence fall in such a way that changes the inputs into the calculations.

Put on the Opposing Experts Hat

Your expert should be asked by you to critically examine their calculations from the point of view of an opposing expert in order to determine the weaknesses and strengths in their opinions and conclusions.  They will then be in a position to see how their arguments will be viewed from the opposing side and what areas require further proof or strengthening.  This step cannot be overlooked in any Forensic investigation.  It is preferable to find out your experts weaknesses prior to having it exposed in cross examination.

PRESENTATION

The presentation stage of your expert’s evidence is what makes the difference between a good forensic accountant and an outstanding one.  I do not intend to deal with the aspect of the presentation but will provide some practical advice on the preparation and presentation of any written report.

Understand that not everyone will read it.  In fact, it may even be the case that the Judge may not even read it fully.  Nevertheless, it is still important.  A written report forces you to organise your mind in such a way that after its completion, you will be a better witness in Court.  After all, that is where your evidence is ultimately tested.  You cannot in my opinion, be a good witness in Court unless you have an organised mind.

It is fair to say that apart from the opposing expert, there will be no one as close to the expert evidence as you.  For this very reason it is easy to become so engulfed in the complexities and intricacies of the case that you fail to provide a report that anyone other than the opposing expert can understand.

Nothing is gained from making something appear more complicated than it really is.  In fact, it is a tremendous skill to be able to make a complicated matter appear simple.

The simple fact is, if it cannot be understood than it will not be relied upon, regardless of how “right” it is.

I reiterate that the primary objective of an expert is to have the Court prefer your opinion over that of the opposing expert.

To achieve this goal, it is obvious that the Court must be able to understand and accept the methodology adopted by you and the conclusions you reach must logically follow on from such methodology.  The facts and assumptions must be supported by proof and where there is doubt regarding some of this proof, a range of alternatives should be considered and other evidence used to guide to court to a reasonable position.

Now for the bad news.  Your expert has developed a model report, easy to understand, logical conclusions, undisputed facts and assumptions supported by reasonable proof.  Even so, they are not half way to achieving their primary objective.  How they present this evidence-in-chief and respond in cross-examination may well be the deciding factor.

Stay tuned for Part 2 in my series where we will explore presenting financial evidence in early 2018…

Want to know more?

If you would like to know more about Forensic Accounting, please contact Forensic Services Director and our Founding Director, Paul Vincent.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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