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Tony Levitt 8 Sep 2016 12:40pm

Diary of a forensic accountant: Part 1

The first in a series on the life of a forensic accountant, which takes in flaming buildings and being cross-examined

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Caption: The first in a series which takes in flaming buildings and being cross-examined

A client calls to say that a factory in the Midlands is on fire, and he would like us to establish the financial impact of the damage – by tomorrow if possible. Accountants are not known for leaving their offices to trample though smouldering wreckage of buildings and equipment, trying to determine the loss of profit arising from the damage and the effect that this might have on the company.

You might very well ask, why is an accountant running off to see a burnt factory? No numbers there.

A traditional accountant is often looking back at historic data to establish the financial results of a company, and to ensure that the financial statements are fairly presented. A forensic accountant, on the other hand, is usually looking ahead, to establish what would have happened had the event or circumstance not occurred. An event could be a natural disaster, such as a fire or a flood, a breach of contract, dispute between parties or the modern scourge – a cyber-attack.

Read more from our diary of a forensic accountant series

Another difference between traditional accounting and forensic accounting is the extent to which we need to use non-accounting documents in our analysis. The financial records are important, of course, but so is external research into the company and industry, understanding the economic circumstances at the time of the damage or breach, and the actual physical damage that occurred, and how this impacted on the profits of the business.

A few months ago, I was wearing a hard hat, high visibility jacket and metal tipped boots, hiking around an enormous open cast mine. The site visit was necessary to understand how the mine had been operating before 100 million tonnes of rock slid into the pit (miraculously, nobody was injured). Obviously, this event would have an enormous impact on the way in which metal was to be mined in the aftermath of the slide. An understanding of the plans before and after the event is crucial, in order to establish the financial impact. The site visit included discussions with technical as well as financial people. It is this mixture of accounting and non-accounting which can make these projects so interesting.

Read more from our diary of a forensic accountant series

The work also involves acting as an expert witness. This means that we prepare reports for court or arbitration to explain and support our view of quantum. If the case does not settle, then the accountant will give evidence and be cross examined on his or her conclusions. This can be a terrifying experience and is not for everyone.
Over the past few years, I have worked on cases in the UK, South Africa, Uganda, Zambia, Zimbabwe, Israel, Kuwait, Australia, USA, and Chile – and have travelled to these and many other places on numerous occasions.

Forensic accounting is a generic term for many types of ‘investigative accounting’. Quantifying damages is one aspect of it, whilst the investigation of fraud and the tracing of missing assets is another. We will explore different aspects of forensic accounting in future articles.

The work is varied and I often do not know what each day will bring - and I guess that is why I enjoy the work, despite the pressure and stress that goes with it. By the way, my client got my estimate of the impact of the fire on the factory in the Midlands – by the following day.


Tony Levitt is a founding partner of RGL Forensics and is the senior partner in London where he leads the firm’s international practice


 

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