When most business owners think about forensic accounting, they generally think about the search for theft. But, in reality, forensic accounting is a valuable tool for many occasions that don't involve someone stealing funds from your business.
What types of situations call for using a forensic accountant? Here are five of the most common.
When a business owner or one of the partners becomes involved in a divorce, the business also becomes involved. No matter whether the owner is seeking a divorce or responding to their spouse's petition, the business needs accurately valued. This valuation must be impartial and reliable, or the business could be embroiled in an uglier battle than it needs to be.
If you're planning to buy an established business, you need to know exactly what you're getting for your money. Simply looking at the financial statements isn't enough because you don't know where those numbers are coming from.
A forensic accountant will look at the original documents, asset values, and cash flow to verify that the books are accurate, and they will search for hidden dangers like unfinished lawsuits.
Similarly, you may want to work with a forensic accountant if you want to sell your own business. It will help solidify the correct valuation so you get what the business is really worth. For example, a forensic accountant may adjust asset values from book value to market value to determine what their real potential is.
If you have partners, everyone needs to have confidence in the business books and its valuation. A forensic accountant is an objective third party that can confirm the accounting practices and help you decide how to split assets or interest equitably.
This step is particularly valuable when a partner leaves the company or when one passes away. Your business avoids legal or reputation trouble by establishing the value of that person's interest to the satisfaction of all parties.
Even if you're not adding or losing partners, forensic accounting services helps a partnership avoid conflict and disputes by demonstrating that the finances are being kept above board. Since most partnerships rely on certain members to manage the operations of the business, this helps everyone have confidence in the transparency of how their business is run.
Is the business going to be audited by a government agency? Most agency audits are severely limited in scope, but a few can be daunting. A state or federal tax audit is one of the most potentially harmful audits because everything involving the company's finances could be involved.
Prepare for a big audit by conducting an audit of your own books with a forensic accountant. That way, you learn in advance about anything that might raise a red flag for the auditor — and you have a chance to correct it or determine how to handle it.
As natural disasters become more commonplace — and often more devastating — your company faces the potential loss of records from dangers as diverse as floods, fires, earthquakes, or landslides.
Recovery from such a disaster is a specialty for some forensic accountants. They can help your business reconstruct financial records, determine the value of what you lost, account for business interruption, isolate non-covered damages, and prepare a recovery plan.
There are many other times, of course, when forensic accounting can help your company. If you think that your business might benefit from working with a professional in this field,
Williams & Associates Tax Services
can help. Call today to make an appointment to assess your specific needs.
