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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
- Analysing Financial Statements
- Administration
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
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
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
VISIT OUR WEBSITE: www.flintforensics.com.au
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