If you rely solely on business valuation in litigation and business deals, you could be missing a critical piece of the puzzle. Forensic accounting can fill in the gaps and reveal a clearer picture.
We love how ValuePointe.biz™ Principal and Manager Dwight A. Ensley explains it: “Sometimes clients believe that the business valuator is also a forensic accountant. However, the process of determining the value of a business does not include auditing the business’ financial records or performing forensic accounting. Generally, the business valuator will accept the Company’s tax returns, financial statements, and other financial records at face value without verification.”
The proof of this is front and center. Take a look at a business valuation report, and you’ll often spot a disclaimer that the information provided for the valuation was not verified/audited/reviewed. It was taken at face value. Why? Determining the legitimacy of the numbers provided for the valuation is not the business valuation professional’s job. Ensley inserts an entertaining story of the Pink Panther to illustrate his point.
Forensic accountants are detectives who, as Accounting.com puts it, examine data to determine where missing money has gone and how to recover it. Business valuation professionals determine the economic value of a business from the data presented to them. A business valuation can uncover the need for a forensic accounting investigation. This happens when a valuation report presents surprising results. A valuation that falls short may indicate that someone with their hands on the books could be skimming, for instance. Unraveling those clues is a forensic accountant’s sweet spot.
When it comes to litigation, you often need both professionals. It’s essential to determine the value of any assets in question, but it’s also important to “follow the money” and uncover the truth behind that determined worth. That’s why forensic accountants commonly assist attorneys, juries and judges with challenging accounting and tax questions as litigation support and expert witnesses. Forensic accounting and business valuation intersect in critical ways and can be used together to build a more solid case. Feel free to contact uswith questions.