Joint Retention of Forensic Accounting Experts

Should an attorney jointly retain a forensic accountant before litigation, mediation or arbitration?

A qualified neutral forensic accounting analysis has a strong potential to facilitate early resolution of a contested matter.Legal counsel should not view a jointly retained forensic accountant as a relinquishment of control but rather, as another tool for resolving disputes. A work product that is objective and unbiased towards the litigating parties is likely to benefit counsel and litigants alike.

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Can a Forensics Report Lead to Dispute Resolution?

A proactive forensic accounting may be the prudent tactic for your clients by:

  • Eliminating or reducing areas of uncertainty or incompleteness of information
  • Quantifying the potential range of economic damages, thereby allowing the litigating parties to more fully evaluate the risks and rewards they face in further pursuing litigation.

The result of such a qualified forensic accounting report may even lead to dispute resolution before filing litigation, further reducing costs to the litigating parties.

Early Expert Retention Brings Facts to Light

Quantification of the critical areas of a dispute often leads to more rapid settlement by facilitating communication regarding the true underlying accounting issues involved. Bringing to light all areas of factual dispute early on can often dictate the retention of relevant specialists, particularly forensic accountants.

Unfortunately, in an all too common counterproductive effort to save costs, early retention of forensic accountants is not always the case. However, delaying retention until after the filing of a lawsuit or late in discovery can greatly increase costs and risks later on, and often results in prolonged litigation.

Forensic Accounting to Settle Disputes

Forensic accountants utilize their expertise and knowledge of economics and finances to identify, quantify and affix responsibility for financial improprieties.The term forensic accounting was coined by Maurice Peloubet during 1946 in an essay entitled “Forensic Accounting: Its Place in Today’s Economy.” The forensic accountant may be known as either a fraud auditor or investigative accountant; however, these monikers don’t fully describe the main function of forensic accounting, which is fact finding.

As fact-finders, forensic accountants search through financial records to determine the actual course of events and/or amount of economic damages. Documents used to conduct a forensic accounting investigation include:

  • Internal documentation like general ledgers, financial statements, bank reconciliations and reports prepared for regulatory bodies, such as tax returns.
  • External documentation in the form of bank statements and accompanying transactional documents (deposit tickets, cancelled checks), brokerage statements, customer purchase orders, or vendor invoices which should be consistent with internally generated documentation.
  • Control documentation for use in corroborating recorded financial information, such as industry statistics, economic indicators, consumer price indexes, productive labor hours, customer payments received and raw materials utilized in production.