by Mark Kohn, CPA

Most forensic accountants begin their assignments by preparing a list of documents needed. Attorneys sometimes respond to these requests by calling them overburdensome and excessive. This article will explain some of the reasons why those documents are being requested.

Financial Statements

An analysis of financial statements, especially over a five year period, will present a good picture of the financial condition of the company. In addition, it can show new patterns that are developing, if sales are growing steadily, if profits are growing, if assets are increasing, that tells one kind of story. If sales are going up and then down every year or so, if the company does very well and then very poorly, that tells a different story. The different stories being told will then indicate the amount of further analysis that will be needed. In addition, sometimes a business is very steady until the year of divorce, at which point sales suddenly decrease, or legal expenses suddenly increase, or the gross profit percentage becomes inconsistent, or some other type of change occurs. This change is a flag to the accountant suggesting the need for greater attention to the changes in order to determine their legitimacy.

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