FAQs
Below are some frequently asked questions about forensic accounting. If you can't find the answer you're looking for, contact our team here.
Below are some frequently asked questions about forensic accounting. If you can't find the answer you're looking for, contact our team here.
In plain English, the term “forensic” means “relating to court”. As forensic accountants, we typically apply our skills, experience and expertise in a litigation context involving questions of an accounting, financial or commercial nature.
Most often, forensic accountants are engaged to quantify the damage or loss suffered because of the actions of another party, which includes litigation such as:
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When engaged as an expert witness, a forensic accountant will prepare an independent expert report expressing opinions on financial and accounting matters related to legal proceedings. If the matter goes to Court, the forensic accountant may also be required to provide oral evidence and be cross-examined on the opinions expressed in their independent expert report – hence the term ‘expert witness’.
When engaged as an expert witness, a forensic accountant must comply with Independent Expert Witness Codes of Conduct imposed by Australian Courts.
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A forensic accountant may be engaged as a consulting expert for a range of reasons including acting as an adviser, arbitrator, mediator or expert determiner where the services are not provided for use in the context of legal proceedings.
A consulting forensic accounting expert can be engaged as a “shadow expert” by a client or their lawyers, as part of their legal strategy, to review and critique an independent forensic accounting expert’s report. For example, the consulting expert may assist the legal team in developing questions or generating additional instructions to put to the independent expert. In those circumstances, the consulting expert executes the engagement in a partisan way because the consulting expert is not required to give evidence and is not bound by the Courts’ Codes of Conduct for experts.
A forensic accountant may be called on to assist in the investigation of illegal or unethical behaviour such as fraud, other white-collar crime and professional negligence. Because of the nature of the investigation, the services may be conducted before legal proceedings have been commenced. However, when engaged to provide investigation services, the forensic accountant should conduct their investigation with the reasonable expectation that the investigation will result in legal proceedings brought before a Court.
In Family Law disputes or disputes between business partners a forensic accountant may be called upon to investigate and report on the movement of cash and explanation of expenditure.
Forensic accountants are sometimes called upon to provide evidence that requires them to utilise their training, expertise, study or experience without providing an opinion or giving evidence. Examples include:
In these instances, no opinion is expressed as to the factual accuracy of the financial information or the extent to which the accounting standards may have been applied in line with the requirements of the accounting standard.
We strongly believe in engaging a forensic accountant earlier, rather than later, in the proceedings. Ideally, during the process of deciding whether to launch proceedings. In many instances, the nature of the legal dispute is quite complex, the merits of the arguments untested and the approach to quantifying the damages challenging. Early engagement allows us to better assist the lawyers in developing their legal strategy, quantifying losses in the statement of claim and understanding and overcoming evidentiary obstacles.
The costs associated with preparing a forensic accounting report can diverge significantly, driven by a range of factors, including the nature and complexity of the litigation, the scope of the questions being asked (influencing the number of hours required) and, of course, hourly rates. Further, the more complex the matter, the greater the involvement of senior staff. We do, however, seek to leverage the more junior staff where possible to deliver cost efficient reports.
For non-Family Law matters, our weighted average hourly rate is in the range of $440 to $490 (excluding GST) and, on average, a first draft of an expert report might take between 70 and 100 hours to complete. On those estimates, a forensic accounting report might cost on average between $30,000 and $50,000 (excluding GST).
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It’s understandable that lawyers and/or their clients can be hesitant about engaging a forensic accountant. That’s because there can be a whole lot of uncertainty around satisfying the evidentiary requirements, the chances of success and even if successful, whether the damages awarded will justify the costs involved –including the financial, mental, and emotional costs associated with prosecuting or defending a claim.
At BRI Ferrier Forensic we offer a phased approach to forensic accounting engagements, which empowers the client to better control the costs and manage the risks and uncertainties associated with litigation.
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An account of profits is an equitable remedy that seeks to ensure that people in trusted positions who breach their duties, or those who infringe intellectual property rights, don’t benefit from their wrongful conduct. It is commonly sought in disputes involving breaches of fiduciary duties, the theft or “passing off” of intellectual property and misuse of confidential information.
It is an alternative remedy to damages that seeks to serve justice by returning to the plaintiff any profits made by the defendant in committing the wrongful act. As such, it differs to a calculation of compensatory damages which quantify the losses suffered by the plaintiff from the defendant’s misconduct.
Compared to a damages calculation, quantifying an account of profits can be more complex because the profits made by the defendant need to be apportioned to between the infringing and non-infringing elements of the product.
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The measure of damages should align with the remedy sought by the parties, based on the nature of the wrongful conduct.
Where breaches of common law duties arise, such as a breach of contract and misrepresentation, the measure of damages generally seeks to put the plaintiff in the same position it would have been, but for the misconduct. However, that rule is not rigid, particularly where a concurrent claim is brought in contract and tort. Where breaches of common law fiduciary duties arise, the fiduciary may be liable, for example, to compensate the plaintiff for losses suffered or to return to the plaintiff any profits made from the breach.
Where statutory or legislative breaches arise, for example, under the Corporations Act and Australian Consumer Law, the measure of damages will be determined by the specific provision breached. Accordingly, the approach to quantifying damages can diverge significantly.
Damages are a legal relief referring to the sums, assessed in monetary terms, paid to a successful party arising from the wrongful conduct of another party, such as breaches of contract and fiduciary duties, misrepresentation as well as breaches of statutory and legislative provisions.
Highly relevant to the task of quantifying damages is the plaintiff’s ability to establish that:
Further, the Court may reduce or apportion the award of damages if the plaintiff did not take reasonable steps to mitigate its losses or the defendant is successful in proving contributory negligence or concurrent wrong doing.
A claim for loss of opportunity can arise in consequence of a contractual breach, negligence, personal injury, or misleading and deceptive conduct where the wrong results in the loss of a chance to profit, gain or benefit.
Where a breach of contract arises, a plaintiff need only prove the breach to be entitled to nominal damages for the lost benefit. This is so even if the plaintiff is unable to prove what, if any, value, performance of the contractual promises would have had.
In contrast, a plaintiff’s failure to prove damage in a tortious claim (such as negligence or breaches of Australian Consumer Law) precludes an award of compensation. However, it remains open to a plaintiff to assert a loss has been suffered in respect of the right or opportunity to acquire a commercial benefit (or avoid a detriment)
To prove a loss of opportunity, a plaintiff must overcome three hurdles to persuade the Court that the asserted outcome was more than hypothetical: