The same thing might be said for forensic accountants, who are becoming more popular for their ability to dissect and analyze corporate accounting systems and results in a very investigative manner.
“Reasonable minds can differ,” says Howard Zandman, a principal at Tauber & Balser, P.C. “In order to support the assumptions, the forensic accountant will consult with industry data and research economic outlooks to compile the source materials used to justify his or her position, if necessary.”
Smart Business spoke with Zandman about the concept and duties of a forensic accountant.
We have all heard a lot recently about forensic accounting. Can you please tell us what this really means?
To put it in very simple terms, forensic accounting is much more of an art form than a science. Forensic, according to Webster’s Dictionary, means: ‘belonging to, used in or suitable to courts of judicature or to public discussion and debate.’ In other words, a forensic accountant analyzes financial data with the anticipation of presenting it as evidence in a courtroom, whether in front of a judge or a jury.
Another term that is commonly used for what I do is ‘investigative’ accounting. Far from the humdrum stereotypic accountant your mind might have initially conjured, the forensic accounting professional is more of a private investigator with a financial sixth sense than the bookkeeper with a green eyeshade.
What is the difference between financial auditing and forensic or investigative accounting?
They differ in many different ways. However, more specifically, financial auditing follows prescribed rules set forth by the Financial Accounting Standards Board (FASB), Securities and Exchange Commission (SEC) and others. These rules, among other things, ask the auditor to assess the risk associated with the company being audited and to set out a specific guide or audit plan to follow in the course of the engagement.
Investigative or forensic accounting follows a much different mindset.
Auditors formulate an opinion on management’s financial statements, relying on management representations. They work from a sample of data. Meanwhile, forensic accountants definitively investigate specific issues with an attitude of heightened skepticism. They work with all of the data.
Forensic accounting involves looking beyond the numbers and grasping the substance of situations. A forensic accountant is often retained to analyze, interpret, summarize and present complex financial and business related issues in a manner that is both understandable and properly supported.
What types of business situations would forensic accountants get involved in?
Forensic accounting covers many different scenarios such as business startup and planning, business disputes, fraud and personal injury. Business disputes encompass areas such as business valuations, business dissolution, profit share disputes, breach of contract, professional negligence, warranties and product liabilities, fraudulent financial information and purchase price disputes. Personal injury cases involve issues such as loss of earnings and pension and dependency claims. Fraud investigations might include investment fraud, stock broker fraud and e-mail fraud. Each assignment is certainly unique.
What distinguishes one forensic accountant apart from another? Every accountant deals with numbers, so what attributes should one look for?
In a litigation context, the accountant is very well suited to compute damages of a matter. Be it a breach of contract, a broker/dealer dispute, intellectual property dispute, personal injury calculation or just a business interruption or lost profits matter, this is the kind of stuff that you would think that accountants were made for. However, don’t be fooled by just looking for a number cruncher. It is important that the forensic accountant stay well versed in all areas of competence by partaking in annual continuing education courses.
In order to support the assumptions, the forensic accountant will consult industry data and research economic outlooks to compile the source materials used to justify his or her position, if necessary. However, the forensic accountant will approach every matter with a reasonable degree of skepticism, conducting what-if scenarios so as to attempt to stave off the notion that appearances can be deceiving. It is very important that forensic accountants not give the appearance that they are advocates for their clients. They must remain independent, but at the same time be advocates for the opinion being rendered.
HOWARD ZANDMAN is a principal with Tauber & Balser, P.C., in the Forensic Accounting & Litigation Services Group. He has served as an expert witness on matters involving loss of income (lost profits), employee theft and other internal fraud, financial motive for arson, domestic disputes, and broker/dealer disputes, and is a frequent public speaker. Reach him at (404) 261-7200.