Forensic Accountants – Case Laws

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Introduction

Each business needs a person that will protect company assets. This is the function of accountants. Financial statements of any firm should be prepared for the sake of various stakeholders. However currently, the financial needs of firms have greatly changed. On the same note, courts require experts in not only business processes, but also legal issues when dealing with issues affecting businesses. Forensic accounting has therefore gained popularity in the recent past. The requirements of forensic accountants have increased leading to increased attention of the profession. Therefore, forensic accountants should be able to put into use various skills in executing their functions.

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Required skills

In order to execute their duties effectively, forensic accountants require various skills. To begin with, forensic accountants are expected to detect frauds that take place in any business. It is important to note that fraudsters are enhancing their skills each and every day. Consequently, forensic accountants are required to have excellent knowledge of financial accounting and auditing. Forensic accountants should be able to unearth any fraud that has taken place or is about to take place. It would otherwise be very difficult for a person to pretend to oversee a process that he or she does not know how it should take place (Manning, 2010). Forensic accountants need to know how financial statements should be prepared so as to be able to know when something is not straight.

Another very important skill of forensic accountants is communication skills. The work of forensic accountants entails preparing of reports and reporting them to various platforms. In court rooms, forensic accountants are supposed to effectively deliver their message to the jury. Similarly, after going through financial statements prepared by internal accountants and auditors, forensic accountants will have to prepare reports for the concerned stakeholders (Dutta, 2013). Consequently, communication skills are inevitable. It is vital to note that these skills are both verbal and writing skills.

Operating in the legal environment is a tricky issue. One has to understand all the legal intricacies that are involved. One needs to know what the law requires in each scenario. Moreover, one needs to know the legal requirements of the profession in question. As a result, forensic accountants cannot be able to perform their work if they do not understand the legal structure of the place they are operating in. Therefore, understanding the country’s legal structure is an important skill for any forensic accountant. This is due to the fact that in many instances, forensic accountants will be required to present various evidences in a court of law (DiGabrielle, 2008). While in the court, it will be very crucial that a forensic accountant understands how to deliver his or her evidence to avoid contradictions. On the same note, not all information can be released to the public. It is upon a forensic accountant to know which information to release and which one to hide. In a nutshell, a forensic accountant should not only understand the regulations in place as far as giving evidence is concerned but should also be aware of all court procedures (Manning, 2010).

In addition, forensic accountants must have investigative skills that will enable him or her know when a fraud takes place. These will be crucial if the accountant is critical and analytical. Most importantly, a forensic accountant will need to know methods and patterns that frauds are likely to take. He or she should also be aware of the modes of concealing a fraud. In this way, a forensic accountant will be able to easily detect a fraud. Lastly, forensic accountants highly require ability to deal with large volumes of financial data and generate a good conclusion (Lichtman, 2009). Consequently, strong analytical skills are inevitable.

Their Role in Court

Financial crimes are increasingly becoming common within the business environment. Many people are caught and taken to law courts. However, a specialist in the field of accounting is required to evaluate and explain to the jury how the fraud might have taken place and how the accused was involved. Moreover, evidence of financial crimes are always presented in statistical and numerical data, there is need of an expert to interpret these to the jury and the magistrate (Singleton T. & Singleton A., 2010). Consequently, forensic accountants are very important in courtrooms to simplify the financial evidence that is presented into a more simple form that is understood by everybody. Moreover, it is the role of a forensic accountant to explain to the court whether according to his professional expertise the fraud could have been avoided (Litchman, 2009).

With the increased need to prevent fraudulent activities in business, forensic accountants are increasingly becoming important. Apart from the usual accounting roles, forensic accountants have a legal responsibility to business. To begin with, after discovering any fraudulent activity in the business, it is the role of the forensic accountant to prepare the case. In this regard, they have to piece together documents that reveal the occurrence of the fraud (Singleton T. & Singleton A., 2010). On the same note, it is the role of the forensic accountant to determine which information is legally relevant to the fraud.

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Similarly, forensic accountants know the accounting processes of the business and the specific people that are concerned. Therefore, when a fraud is discovered, forensic accountants should review the entire system and determine the people that are concerned. Forensic accountants will then investigate the case by asking the concerned people questions that will enable them get the necessary evidence (Manning, 2010). Forensic accountants have the legal responsibility of ensuring they interview every person whom they deem may be having the required information.

On the same note, forensic accountants are supposed to get the materials that are necessary for the case. Using their expertise as accountants, they should be able to know what documents were forged or tampered with thereby paving way for any fraud to occur. It is, therefore, their responsibility to evaluate the extent to which the materials are most likely to support the case. Forensic accountants should help the business in not only identifying, but also gathering these materials. In addition, it is important to note that any business is concerned with the financial implication of any fraudulent activity (DiGabrielle, 2008). It is the forensic accountant who will be able to analyze and evaluate the financial loss of a fraud to the business and present the same to any relevant authority.

More often, frauds will be reported to courts of law and a legal process initiated. There will be need during the process for expert opinion regarding the issues in question. Besides, a dispute may arise between a business and another party where expert opinion may be required (Litchman, 2009). Forensic accounts are tasked with the duty of preparing the expert report regarding a fraud and either presenting the same in court or giving it to the authorized parties.

Case Laws

Forensic accountants have been involved in unearthing very many frauds in various firms. On the same note, their services have been used in various cases. To begin with, the case of Orinda-Moraga a disposal firm in Contra Costa used services of a forensic accountant. The Disposal firm had initially announced its plans to reduce the rates that it used to charge its clients. However, within a short period of time it was again asking for the approval from the sanitation department to increase its rates so as to keep itself afloat. The mayor of the county got suspicious and initiated a case where the owners of the firm were found guilty. The owners of the firm had formed various fake companies which received payments for the services that they never offered. On the same note, expenses of the firm were exaggerated in order to support the claim of increasing the rates (Dutta, 2013). All these were done solely to get illegal money from the company which is illegal.

In the above case, a forensic accountant had various roles. The first role was to find whether all the expenses of the firm were genuine. Therefore, the forensic accountant evaluated every document where expenses were recorded to ensure their validity. On the same note, the forensic accountant helped in evaluating whether the owners of Orinda-Moraga had other companies that would probably be siphoning money.

The divorce dispute between Sir Paul McCartney and Heather Mills also called for involvement of forensic accountants. McCartney told the court that he was only worthy $785 million. However, Mills disagreed claiming that McCartney was actually worthy $1.6 billion. The question before the court was to determine the actual wealthy of McCartney so that Mills could get her fair share. In doing so, all the transactions of McCartney had to be reviewed to ensure that all assets as well as accounts owned by McCartney are brought to the light. Forensic accountants were hired and they helped in determining the actual wealthy of McCartney (Dutta, 2013).

In this case, the role of forensic accountants was to go through every record that could possibly enable them to get the correct worth of McCartney. On the same note, they were supposed to evaluate any transactions undertaken by McCartney or any party authorized by him in a bid to determine whether he had transferred some of his assets to hide them. Moreover, the forensic accountants were supposed to determine whether McCartney owns any other assets in a different name or indirectly which he did not reveal during the divorce process.

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Conclusion

The business environment is increasingly becoming complex. Fraudsters are enhancing their tricks each day. Moreover, there is an increased need to protect the assets of a firm because of the increasing magnitude of fraud on financial position of a firm. To successfully prosecute a fraudster, expert evidence is required not only to determine the existence of the fraud, but also its financial implication. Consequently, the importance of forensic accountants in the current business environment is enormous. They help in ensuring that frauds are prevented and that when a fraud takes place legal action is taken against the concerned people.

References

DiGabrielle, J. (2008). An Empirical Investigation of the Relevant Skills of Forensic Accountants. Journal of Education for Business, 331-338.

Dutta, S. K. (2013). Statistical Techniques for Forensic Accounting: Understanding the Theory and Application of Data Analysis. Upper Saddle River: FT Press.

Lichtman, S. H. (2009). The power of storytelling. The CPA Journal, 79(4), 6-8.

Manning, G. A. (2010). Financial Investigation and Forensic Accounting. Boca Raton: CRC Press.

Singleton, T. W. & Singleton, A. J. (2010). Fraud Auditing and Forensic Accounting. Hoboken: John Wiley & Sons.

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