Flint Forensics Pty Ltd - Newsletter
Welcome to the eighth edition of the Flint Forensics Pty Ltd semi-annual newsletter. This newsletter is to help keep you informed of the latest developments relevant to Life Policies and personal and commercial litigation support. It is a free service provided by Flint Forensics Pty Ltd.
Index
Today’s auditors are not forensic accounting investigators
The lay person outside the accounting profession believes auditors have received extensive training in the skills of forensic accounting investigation. This is not so for most auditors. Undergraduate accounting programs do not, to the best of my knowledge, require courses in forensic accounting investigation, although some offer elective courses. The forensic accounting discipline is an art requiring a different set of skills, training, education and experience.
What I expect to evolve in the education of future accountants is a curriculum that increases students’ awareness of detection techniques as well as instruction that enables them to have an appreciation for the capabilities of forensic accounting investigators.
The
Institute of
Chartered Accountants has already worked with
Monash
University in developing the Graduate Certificate of Forensics Studies majoring in Accounting and has been operating for some years now. I have completed the course some years ago.
Analysing Financial Statements
Analytic procedures have long been useful investigative techniques when the basis of the investigation is likely to be reflected in company accounting records and financial statements.
This is trued of most types of economic crime, and, accordingly, the forensic accounting investigator will frequently encounter investigations in which analytic procedures are needed.
Analytical techniques have the overall objective of identifying the unexpected – relationships that do not make sense.
There are various techniques to use, however, the one that I always use first is, “Is what is presented in front of me reasonable”. With all of the other information available to me such as the industry, business structure, key personnel, do the figures make sense?
I recently debated the issue with a client who provided a consolidated detailed profit and loss statement of three businesses, namely a consulting business, a cattle farm and another business. If was a husband and wife partnership. The husband worked the cattle farm and the other business and the wife worked the consulting business. The consulting business activity which had earnings as a result of the wife’s own activity and upon my review over 90 per cent of the expenses related to this business activity. However, the client stated that expenses relating to this entity were nominal and that they could not be broken down into each business activity. The question is what is nominal. Well the client did not want to provide the detailed profit and loss statement for each business activity because in my opinion, if they did, the result would be that there were no earnings pertaining to the consultant business.
Therefore, it is important to obtain all of the information, review it, sit back and ponder, is the information provided, reasonable given all of the other information at your disposal.
Another form of reasonableness testing is the use of benchmarking the results in the financial statements against an independent expectation. For example, the forensic accounting investigator may calculate expected interest expense for a given period by multiplying the average outstanding debt balance by the average published index upon which the interest is based. Any unusual fluctuation identified when comparing this independent view with the amount recorded in the financial statements should be investigated.
A recent example of this is a client in an income protection claim. The interest pre disability was consistent over the three pre disability earnings year. However, when the monthly detailed profit and loss statements started rolling in, it became apparent that interest expense significantly increased. My further investigations revealed that the client had started to include personal interest from there credit cards into the business by journal entry. I subsequently identified the transactions and denied any claim for the interest associated with the credit cards which had no nexus to the business activities.
Administration
Mr Dean Kelly
Mr Dean Kelly has joined the firm and has the following qualifications.
- a Bachelor of Business Majoring in Accounting and Finance - degree with Distinction,
- completed the CPA Program,
- is a member of CPA Australia,
- Certificate III in Investigative Services, and
- Certificate IV in Government Investigation.
Mr Dean Kelly has over a decade of experience in business and financial services, both locally and in
England. These roles included the then, Coopers & Lybrand, Westpac Financial Services, Queensland Investment Corporation, Zurich Financial Services and Dresdner RCM Global Investors.
Instruction Forms
I have available a series of instruction forms which also have guidelines as to what information may be required for specific tasks. This is a valuable resource and I can only stress the importance of requesting the right information the first time to make the financial assessment the most efficient and effective as possible. Please feel free to review these at our leisure.
You can either print them out or simply unprotect the document by using the password "FLINTFORENSICS" and save the document to your desktop.
Talk to you soon,
Bruce Flint
Managing Director
FLINT FORENSICS PTY LIMITED - Assessment of Economic Loss, Expert Witness, Financial and Other Investigations, Income Protection Risk Management, Regulatory Investigation and Assessment, Training and Valuations
PH: 02 9584 1474 FAX: 02 9584 1474
MOBILE: 0409 18 4598
VISIT OUR WEBSITE: www.flintforensics.com.au
WE AIM TO PROVIDE PROFITABLE SOLUTIONS
Liability limited by a scheme approved under the Professional Standard Legislation. This email and its contents are also subject to copyright. No part of it should be reproduced, adapted or transmitted without the written consent of the copyright owner.
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