Forensic Accounting

Forensic accounting is used across a range of matters where financial information is disputed, incomplete, or requires independent analysis. Examples of the types of engagements we support include the following.

• Shareholder, Partner and Member Disputes
• Breach of Contract and Commercial Litigation
• Fraud, Embezzlement and Misappropriation Investigations
• Bankruptcy, Insolvency and Receivership Matters
• Estate, Trust and Fiduciary Disputes
• Business Interruption and Other Insurance Claims
• Post-Acquisition, Earn-Out and Purchase Price Disputes
• Regulatory, Compliance and Internal Investigations
• Matrimonial and Family Law Matters

Disputes among shareholders, partners, or members of a closely held business can arise from disagreements over management, compensation, distributions, capital contributions, or the valuation of an ownership interest. These disputes often require independent financial analysis to address the parties’ differing positions.

Depending on the engagement, our analysis may include reviewing capital contributions and distributions, profit and loss allocations, and compensation paid to owners and their family members. We may also review related-party transactions, use of business assets for personal purposes, and other financial activity affecting the interests of the parties.

Operating agreements, partnership agreements, bylaws, and other governing documents often address financial rights and obligations relevant to the dispute, including distribution rights, compensation arrangements, and buyout or redemption provisions. Reviewing these documents together with the financial records can help identify the financial issues relevant to the matter.

Counsel determines the legal rights and remedies available to the parties; our role is to analyze the financial records and quantify amounts relevant to those determinations, such as underpayments, overpayments, or other financial discrepancies among the owners.

Commercial litigation involving breach of contract, business torts, or other disputes often requires quantifying the financial impact of the alleged conduct, including lost profits, lost business value, or other damages.

Depending on the engagement, our analysis may include reviewing historical financial performance, industry and market information, and the assumptions underlying a damages claim. We may also evaluate causation-related financial evidence, mitigation, and the period over which damages are claimed.

Lost-profits analyses often require projecting the financial performance a business would have achieved absent the alleged conduct and comparing that projection to actual results. This analysis may consider historical trends, industry conditions, and other factors relevant to the projection.

We evaluate the assumptions, data, and methodology underlying a damages calculation and, where applicable, an opposing analysis, and identify the financial support, or lack of support, for the amounts claimed.

Concerns about fraud, embezzlement, or misappropriation can arise when financial records appear inconsistent with expected activity, internal controls appear weak, or an individual has had significant, unsupervised control over an entity’s finances.

Depending on the engagement, our analysis may include reviewing bank and credit-card records, general ledgers, invoices, payroll records, and other financial documentation to identify unauthorized, unexplained, or unsupported transactions. We may also trace funds among accounts and entities to understand their disposition.

Where indicators of irregular activity are identified, we quantify the amounts involved to the extent supported by the available records and identify any limitations in the underlying information. We document the analysis performed and the basis for our findings.

We do not make legal determinations regarding fraud, intent, or liability. Where those issues are relevant to the matter, we provide the financial analysis necessary for counsel and other appropriate parties to evaluate them.

Bankruptcy, insolvency, and receivership matters often involve questions about a debtor’s financial condition, the disposition of assets, and transactions occurring before or after a filing or the appointment of a receiver.

Depending on the engagement, our analysis may include reviewing financial statements and other records to assess solvency at a particular point in time, tracing the disposition of assets, and identifying transfers, payments, or other transactions relevant to the proceeding.

We may also analyze transactions between a debtor and related parties, insiders, or affiliated entities, and reconcile financial records to identify discrepancies or gaps relevant to the trustee, receiver, or other parties in interest.

The applicable legal standards governing solvency, preferences, fraudulent transfers, and related issues are determined by counsel and the court; our role is to provide the financial analysis relevant to those determinations.

Disputes involving estates, trusts, and other fiduciary relationships often raise questions about whether financial activity is consistent with a fiduciary’s duties and the terms of the governing documents.

Depending on the engagement, our analysis may include reviewing trust or estate accountings, bank and brokerage records, and other financial documentation to trace distributions, investments, fees, and other transactions undertaken by a fiduciary.

We may compare financial activity to the terms of a will, trust agreement, or other governing document, and identify transactions that may warrant further explanation, such as self-dealing, undisclosed compensation, or transfers to related parties.

Counsel determines whether the financial activity identified is consistent with a fiduciary’s legal duties; our role is to trace and quantify the underlying transactions and provide the financial analysis relevant to that determination.

Business interruption and other insurance claims often require quantifying a financial loss resulting from a covered event, such as lost income, extra expenses, or other amounts included in a claim.

Depending on the engagement, our analysis may include reviewing historical financial statements, budgets, and other records to establish the financial performance a business would have achieved absent the covered event, and comparing that expected performance to actual results during the period of interruption.

We may also evaluate the assumptions underlying a claimed loss, including the period of restoration, mitigation efforts, and the treatment of fixed and variable expenses, continuing costs, and any extra expenses incurred.

We analyze the financial support for the amounts claimed and, where applicable, evaluate the assumptions and methodology reflected in an opposing analysis. Coverage determinations and other policy interpretation issues are addressed by counsel and the parties to the policy.

Disputes following the purchase or sale of a business can arise from disagreements over post-closing purchase price adjustments, the calculation of earn-out payments, or representations made about the business’s financial condition.

Depending on the engagement, our analysis may include reviewing the purchase agreement, closing financial statements, and the accounting policies and methodologies applied in preparing them, and comparing those policies to the party’s historical practices and the agreement’s requirements.

Earn-out disputes often require evaluating whether post-closing financial results were calculated consistently with the agreement’s terms, including the treatment of revenue recognition, expenses, and any adjustments specified in the agreement.

We evaluate the financial calculations prepared by each party against the terms of the governing agreement and identify differences resulting from accounting treatment, methodology, or the underlying financial records.

Businesses, boards, and other organizations may engage forensic accountants to conduct internal investigations or respond to regulatory inquiries involving financial records, internal controls, or specific transactions.

Depending on the engagement, our analysis may include reviewing financial records, policies, and internal controls relevant to the matter under review, and identifying and quantifying transactions or activity relevant to the inquiry.

We may also assist counsel in developing document requests, reviewing financial processes and documentation with relevant personnel, and organizing financial information for presentation to a board, regulator, or other party.

Our role is to independently identify, trace, and quantify the financial information relevant to the investigation. Legal and regulatory determinations regarding compliance or liability are made by counsel, the organization, and, where applicable, the regulator.

Divorce and other family law matters involving businesses, multiple accounts, or complex financial activity may require independent forensic accounting analysis beyond reviewing tax returns and financial statements.

Depending on the engagement, our analysis may include tracing funds and assets, analyzing income and cash flow, reviewing business-owner compensation and distributions, and reconciling incomplete or inconsistent financial records.

Where the value of a business or ownership interest is also at issue, our forensic accounting analysis may be considered together with a business valuation to address the financial issues relevant to the marital estate.

Additional considerations relevant to forensic accounting and business valuation in divorce matters are discussed further in our Forensic Accounting in Divorce and Business Valuation in Divorce services.

The specific procedures applied in each matter depend on the financial questions at issue, the records available, and the applicable legal or contractual framework.

We may examine bank and credit-card records, general ledgers, tax returns, payroll records, ownership documents, invoices, contracts, and other supporting information. We compare information across sources, reconcile differences, trace transactions, and identify activity requiring additional analysis or clarification.

Where additional information is provided regarding a transaction or account activity, we consider it together with the underlying financial records. Where records are incomplete or unavailable, we identify the limitation and consider whether other information can be used to address the financial question being analyzed.

Depending on the engagement, our forensic accounting analysis may include:

• Tracing funds among accounts, entities, assets, and individuals
• Reconciling accounting records with bank and credit-card activity
• Analyzing personal, discretionary, or nonoperating expenditures
• Analyzing related-party and intercompany transactions
• Comparing financial statements, tax returns, payroll records, and other financial records
• Quantifying transactions and other financial activity relevant to the engagement

These procedures can help organize complex financial activity, identify differences among financial records, and quantify transactions or other amounts relevant to the engagement.

We identify and explain the financial findings resulting from our analysis, including relevant transactions, reconciliations, patterns, differences, and limitations in the available information. Our conclusions distinguish between information supported by the financial records and assumptions or representations relied upon in the analysis.

We do not make legal determinations regarding intent, fraud, concealment, misappropriation, dissipation, breach of contract or fiduciary duty, solvency, insurance coverage, regulatory compliance, or liability. Where those issues are relevant to the matter, we provide the financial analysis necessary for counsel, the court, a regulator, or other appropriate parties to evaluate them.

Forensic accounting and business valuation may intersect when financial analysis identifies items that affect the financial information used in a valuation. Personal expenses, related-party transactions, nonrecurring items, or inconsistent accounting treatment, for example, may require further analysis when evaluating the historical financial performance of a business.

Where the value of a business or ownership interest is also at issue, see our Business Valuation Services.

Where the question is whether an accountant’s or auditor’s own work met the standards that governed it, see our Accountant and Auditor Malpractice services.