Further sub-categorization of the litigation support accountant is the business valuation, revenue analysis, expert witness testimony, and future earnings’ evaluation. In similar way, the investigative accounting has two specific areas; detecting evidence of criminal act and dispelling or supporting of damages. Business valuation is when the company is floating itself or is looking for funds from some third party. They can only borrow funds from some third party on the basis of their credit worthiness. Besides that they need to show that they have ample worth of assets already in hand. This is especially important for floated companies.
Every time there is an offering to the public of shares they have to let the public know what is their current worth and how have they fared in the past in terms of their asset turnover ratio and their debt equity ratios and so on. Earlier it used to happen that the records used to be manipulated and the public did not used to get the true picture. At the end of the day it was the common man and the plebians who were at the loss of money.
That is why the concept came to have the evaluation done by some third party. The auditors and the chartered accountant firms specialize in that. But even that we have had cases like Enron, WorldCom and other similar cases in the not too distant past. The evaluators had to ensure that they were diligent enough in their work and that did not happen in any of the cases.
Somebody probably said it best that it is in the hands of the accounts, accountants and the accounting practices to change the things for the better of the nation. They are in the position to change things and reveal them. If they reveal everything to its true potential people will to have anything to worry about and everything will be quite transparent. It is when the people want to hide things they bribe these accountants and they end up altering the books for them. That is why at the end of the day there are fictitious assets and in turn it is the common public, which is at the loss, and the people lose money. Forensic accounting is all about helping the audit to go s step further.
This process of evaluating the true worth of the business is even more important when the business is up for sale. The interests of both the parties have to be taken care of and that is why the assets should not be overvalued nor should they be undervalued. It is an important exercise because of late the concept of mergers and acquisitions has been on the rise. Plus there has been this concept of leveraged and inward buyouts. For them to be financed properly and for such deals to go ahead it is imperative that the buyer knows what he is buying and the seller has to know what he is selling and the price has to be quoted in terms. That is why it is significant that the prices of shares can be determined properly and for the share prices to be determined properly one has to know the worth of the company as well as the earnings and the revenues and the debt ratios of the company. While the auditing companies are responsible for the ratio management of the companies the forensic accounting is concerned with determining the true worth of the company.
Similarly there is another field of that of revenue analysis. A business may have a lot of concerns and interests and there may be a number of subsidiaries and other sublets which are operational. So the revenues may be coming from a number of sources and there might be leakages as well as a number of expenses. That is why the analysis of the financial statement is very important for people who want to invest in such companies and it is the job of the accountants to reveal such information to the common public.
Revenues sources have to judged and assessed. That means that one has to know what are the actual sources and what are the means of earning and how long will they last and what is their sustenance level and life in the longer run. Then one has to know about the expense side of the financial statement especially on the income statement of the company. There may be a number of expenses and there may be a number of unnecessary expenses. For instances in a number of cases there are times when the people are spending too heavily on the business executives. These executives do not want the accountants and the auditors to reveal that it is these executives who are eating the hard earned money and return on the investments of the shareholders and on the efforts of the common labor. So they over burden the other expenses and in turn offload their own expenses on such fields and as a result the financial statement suffer a setback and in turn it is the common man who is at the loss again.
Similarly it is a must that it is known what was the true potential of the earnings. The earnings have to be legit and have to be accounted for so that the public can know about and the auditors and the tax payers can also know where to charge and whom and with what amounts. So basically the forensic accounting in this case complements and works hand in hand with the auditing wing of the accountants.
Most importantly there is this field of expert witness testimony and the forensic accountants carry that out too and that main job is not at all simple in this context. This is where they dissect the company to the fullest and are able pass their judgment and they render their opinion. This opinion is deemed to be worthy and many people think that they can benefit most from it. Many a businesses want to know about the forensic accountants’ testimony because they believe that it will act as a true guide for them.
This expert testimony is not based on something personal but they simply use what they see around them. They study all of this and they go through it and then at the end of the day they are in a position to suggest where is the company headed. They can know about it and they are in a position to predict the future of the company. Their testimony carries a lot of weight in the sense that they are considered to be the professionals in the field. It is their specialty and it is assumed that whatever they will be saying will be the best. They do weigh their options and base their decisions on the expert testimonial of the forensic accountants. This minimizes the chances of frauds and people can take a sigh of relief and invest when and where they feel that it is of right nature and the people are supporting them as well.
Most importantly the government institutes can benefit most from the efforts of the expert testimony of the forensic accountants. They can be given a project to research on and a firm may be well and truly assessed and judged by them. They will dissect and study each and every minute details of the company and check for frauds and fraudulent behavior and when the government institutes such as IRS (Internal Revenue Services) they will be in a position to let them know the truth about the company. These government agencies rely on the work and the effort of such firms. There are a few things, which work to their favor. Firstly since they are private firms they do make a lot of money and at the same time it is their expert field and the way they are able to assess and judge the company accounts nobody else is able to do so. They have the expertise, knowledge, know-how and the caliber to reveal the truths of such magnitude. That is why the culprits fear them and the nation, people and the government institutes want them. They know well that the forensic accounting solves half the work of the government officials if it is carried out properly.
Most unpredictable and the tricky part is the assimilation and the judgment future earnings’ evaluation. This is another area the forensic accounting specializes in. on the basis of the past data and the past information they are able to tell the people what is the true worth of the firm. Since they can make out the trends in their actions, policies and the strategies they can also determine what direction are their share prices moving in.
Future earnings are what people are looking forward to and it is the future dividends or the future capital gains in the offering that makes a person invest in a certain company at the present time. Obviously no one would be willing to invest in a firm that is likely to go bankrupt six months down the road. But if someone knows that the in the future the IT sector will be booming and there will be more jobs and the incomes of the company will be growing by more than 200% that implies that the company will be becoming more profitable and in turn there will be more dividends for the end investors which in this case will be the shareholder. It is not that difficult to assimilate but at the end of the day it is all about the future expectations and the predictions that can be made. People often undertake the gamble on the investments and they would be much rather be dead sure about their investment decisions. That can happen if the forensic accountants are able to predict the future growth and the incomes of the company.
But the again it is not only about being able to predict the incomes of the company but more about being able to tell what is the true status of the earnings of the company and whether they are telling the truth to the people or are they lying to the common public. They are trying to let the people know the reality behind any company. For a fraudulent company the reputation is at stake and they are vulnerable to losing everything. But at the same time the good company is in a position to gain everything.
So forensic science is not about giving benefits to those who need it but it is dedicated to exposing the black fishes in the sea. It is all about discovering the wrongdoings and the mishaps of the firms and letting the public know about it. Future cannot be predicted without knowing the truth of the present. Forensic accounting studies the true value of the present and the present stands on the basis of the past and that is why they assess the past as well and on the basis of that they predict the future. This is the part, which makes the future income analysis and suggestion all the more important.
It is not only about numbers because he numbers may get tricky but it is about knowing and judging the true face of things. There are thing, which are there, but we do not notice them and that is why they constitute to be fraud. The idea was that once such a science would be invented it would help preserve the sanctity of things and in the end the people will know that there is someone or a group of people who are dedicated to exposing these people and thus the chances of such fraudulent behavior would be cut down. Forensic Accounting may exist but what is more important is that how well is it executed and how well is it practiced.
Forensic accounting was introduced in the backdrop of ever increasing figures of white-collar crimes. There are limitations associated with law enforcement agencies to tackle such technical and covert frauds being done in organizations. Studies suggest that the mediocre level white-collar crime may amount to $25,000 for a company and this amount can increase up to $500,000 if aided by a computer at the disposal of the criminal. KPMG predicts that there is a large no. Of such criminal acts being done and that justifies an independent unit engaged solely in this specific field of accounting.