Reports_BU - Cal State LA

AICPA Practice Aid for Forensic Accountants,
Reports and Other Comments about the
“First Step” and Evidence
Max Liphart
My Perspectives of:
The AICPA Practice Aid for Forensic Accountants
 Types of Forensic Accounting Reports
 Joseph T. Wells comments on “The First Step”
 Comments on Evidence : The Evidentiary Nature
of Accounting Data by D Larry Crumbley
The AICPA Practice Aid 10-1 for
Forensic Accountant's
Some Background
 The intent of this practice aid is to provide the forensic accounting
practitioner with non-authoritative guidance when serving as an
expert witness or consultant for litigation and dispute service
 This practice aid supersedes AICPA Consulting Services Practice Aid
93-4, Providing Litigation Services.
 Practice Aids are designed to serve as educational and reference
material on technical issues and are not intended to serve as
authoritative guidance.
 Members should exercise independent, professional judgment in the
implementation and execution of these services.
My Perspective: (Often engagements can be so diverse that a standard
“cookie cutter rule” won’t work therefore guidance is offered by the
Forensic Accounting Services Defined
Forensic accounting services include dispute resolution,
litigation support, bankruptcy support, and fraud and
special investigations, among many other services.
 Forensic accounting services utilize the practitioner’s
specialized accounting, auditing, economic, tax, and
other skills to perform a number of consulting activities.
 The provision of forensic accounting services often
requires the practitioner to serve as an expert or fact
witness, depending on the assignment.
My Perspective: (I always assume my work will lead to trial
CPA Expert Witness Services
 A CPA is designated to render an opinion before a trier of
fact as to the matter(s) in dispute.
 Once a CPA takes the stand as an expert witness, his or her
qualifications and work product are exposed to intense scrutiny. If a
consultant becomes an expert witness, OFTEN (my experience) , all
work, including the initial work performed as a consultant, is subject
to discovery.
Types of Reports
Expert Witness Report
 Consulting Services Report
 Fraud Examination Report
Expert Report
Report Disclosures per the Federal Rules of Civil Procedure follows:
Basis for the expert witness opinions (required). In combination with work
performed, a description of the fundamental principles used completes the
requirement to report the basis and reasons for the expert witness’s opinions.
Opinions of the expert witness (required). The practitioner must report the
opinions to be expressed by testimony at the trial.
Data or other information considered (required). Disclose materials considered
by the practitioner in reaching opinions and preparing the expert report. This
includes documents and data produced by the parties during the litigation, as
well as research and other materials independently prepared by the practitioner.
Exhibits to be used by the expert witness (required). The expert witness must
include exhibits expected to be used during the trial to summarize, support, or
explain the expert witness’s opinions.
Qualifications of the expert witness (required). Describe the expert witness’s
scientific, technical, or other specialized knowledge believed to be able to assist
the trier of fact to understand the evidence or determine a fact in issue.
First a Definition by the AICPA
Consulting Services. A CPA provides advice about the facts,
issues, and strategy of a matter. The consultant does not
testify as an expert witness before a trier of fact unless the
consultant’s role subsequently changes to that of an expert
Consulting Services Report
 Why we were retained (example: perform a proof of cash)
 A statement: Procedures do not constitute an audit
II. OVERVIEW..........................................................................................2
 Brief Company Background
III. PROCEDURES PERFORMED……………………………………………………….3
 Objectives of Analyses (account for all funds received and disbursed)
 Scope of Analysis (for period x to y)
IV. OBSERVATIONS (FINDINGS)…………………………………………………..…4
 Certain funds were not properly accounted for (theft of cash)
 Possible additional work suggested (Internal Control is weak)
 Scope Limitations (not allowed to see some stuff we want)
V. EXHIBITS………………………………………………………….….……………...5
Fraud Examination Report
Section I. Background
 The background section should generally be
about two paragraphs. It should state very
succinctly why the fraud examination was
conducted (e.g., an anonymous tip was
received, an anomaly was discovered during an
audit, money or property was missing).
 You may also state who called for the
examination and who assembled the
examination team.
Section II. Executive Summary
For a simple fraud examination, the executive summary should be
no more than four or five paragraphs. For a more complex case,
the summary may reach a page in length.
 In this section, you should also summarize what actions you
performed during the fraud examination, such as reviewing
documents, interviewing witnesses, conducting analyses or tests,
etc. It provides the reader with an overview of what you did during
the examination process.
 At the end of this section, you should summarize the outcome of
the examination. For example, “$50,000 in checks was deposited
into an account owned by Bob Wilson. When confronted with this
information, Wilson stated that he had only borrowed the money
and meant to pay it back.”
Section III. Scope
 This section should consist of just one
paragraph explaining what the scope of the
fraud examination was. For example,
“Determine whether or not inventory was
misappropriated from the warehouse,” or
“Determine why money is missing from the
bank account.” (during relevant time frame).
Section IV. Approach
 This section gives a brief description of the
following items:
 Fraud examination team members
 Procedures (generally what documents were
reviewed or what tests were conducted)
 Individuals interviewed
It provides a handy reference as to who was
involved in the fraud examination, what the
team reviewed, what tests or analyses were
conducted, and what individuals the team
Section V. Findings
 This section contains the details of the fraud examination. It will
generally consist of several pages. In this section you should describe
what tasks you performed and what you found. Provide enough detail
so that the reader understands what occurred, but not so much detail
that the reader begins to lose interest or becomes bogged down in the
details. The reader wants to know how many invoices were forged,
who was involved, how did they do it, what proof do you have, etc.
 If the findings section is long, you may wish to use subheadings for
particular topics or individuals to make it easier for the reader to stay
 The information can be presented either chronologically or by topic —
whatever makes it easier for the reader to follow.
Section VI. Summary
 This section should be one or two paragraphs
and should succinctly summarize the results
of the fraud examination. It should be similar
to the outcome stated at the end of the
Executive Summary section.
Section VII. Recommendations
 This section is optional. There may be instances
where you wish to discuss remedial measures or
specific recommendations in a separate
 If you do wish to include this section, you should
state what follow-up action is necessary or
recommended, including remedial measures
such as a review of internal controls,
introduction of a hotline, increased security, etc.
Analyze the Data ( Max’s comment: Make sure you finish
this task)
The first step is familiar ground for accountants: analyzing
financial information gleaned from the books and
records. In a vendor fraud scheme, you typically would
gather documents reflecting all of the business the
company did with the new vendor: invoices, purchase
orders, vendor files, shipping and receiving reports and
canceled checks, for example.
 Then you would closely examine these data, conduct ratio
analyses, vouch and trace transactions and perform other
tests to look for anomalies.
DATA (2008)
D. Larry Crumbley
Forensic accounting is focused upon the
identification, interpretation, and communication
of the evidence of economic transactions and
reporting events.
 The ultimate goal of a forensic accountant is to
communicate an analysis of this evidence,
structured within some legal framework, so that it is
understood and accepted as fact with "scientific
certainty;" that is, to present "a legally accurate
In short, forensic accountants are employed to seek,
interpret, and communicate transactional and
reporting event evidence in an objective, legally
sustainable fashion.
 Other engagements known as a peremptory
forensic accounting engagement, should not be
confused with the more common review of internal
controls or the like.
 Forensic accounting, whether peremptory or afterthe-fact engagements, is applied to the evidence of
first order activities, not secondary systems of

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