Forensic Accounting
Forensic accounting is the use of investigative and audit skills to
reveal an accurate accounting of a transaction or series of
transactions. Forensic accounting services are called upon in
two situations: before legal action commences and after the
filing of a suit.
Often times our services are called upon to ascertain if there
is justification to proceed legally. More often we are retained
after the case is filed to ascertain an accurate accounting.
Forensic accounting is defined as “pertaining to or employed in
legal proceedings”. The forensic accountant typically, at the
conclusion of the investigation, issues an experts report and
will be expected to defend the report and findings in court.
What types of assignments do forensic accountants perform?
We are retained in a variety of areas. The following are the
most common:
Shareholder and Partnership Disputes
Business Interruption Claims
Employee Fraud Investigations
Matrimonial Disputes
Criminal Investigations
Who retains the forensic accountant?
Forensic accountants are retained by lawyers, Insurance
Companies, Courts, Businesses and Individuals. More often than
not we request that the client retain counsel before we commence
the engagement. Counsel advises us on legal protocol and
privilege issues.
How do I find a qualified forensic accountant?
A forensic accountant should possess knowledge, skill and
experience as well as verbal skills necessary to present their
findings in an eloquent and convincing manner.
Inquire as to the types of cases the accountant has worked on
and the attorney references.
We invite you to review our experiences,
education and references.
How much can I expect to pay?
Forensic examinations fees are typically based on the time
expended and they can get expensive. However, the fees can be
managed.
It is difficult to give a fixed fee for a forensic accounting
engagement. We do not know if we will uncover the discrepancy
within the first hour or within the first week.
We typically “phase the engagement” and you know, before we
commence the first phase, exactly the tasks we are going to
undertake and the fees.
After each phase we meet with the client, discuss what we
uncovered and provide an estimate of fees for the next phase.
This method allows for the client to weigh the cost benefit
analysis and to be involved in the decision process.
Fees are discussed well in advance. There are no surprises.
Equitable Distribution and Support
Marriage is an economic contract and partnership. Everything you
and your spouse buy or acquire during the marriage is legally
owned by the two of you and is marital property. It makes no
difference in whose name you buy or acquire an asset. It also
does not matter whose money was used to purchase the asset.
Most states have equitable distribution laws. As of this
writing, eight states are community property states: Idaho,
California, Nevada, Arizona, New Mexico, Texas, Louisiana and
Washington. In community property states, property distribution
is a 50/50 split. In equitable distribution states, the court
determines a fair, reasonable and equitable distribution which
may be more or less than 50%.
Most states are similar to Pennsylvania in that the law directs
the court to consider a number of factors in determining what is
equitable.
What factors are considered in determining the division of
marital property?
According to Pennsylvania law, the following 11 factors are to
be considered when dividing marital property:
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The length of the marriage
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Any prior marriage
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The age, health, station, amount and sources of income,
vocational skills,,
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employability, estate, liabilities and needs
of each of the parties.
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The contribution by one party to the education, training or
increased earning power of the other party.
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The opportunity of each party for future acquisitions of
capital assets and income
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The sources of income of both parties.
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The contribution or dissipation of each party in the
acquisition , preservation, depreciation or appreciation of the
marital property, including the contribution as a homemaker.
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The value of the property set apart to each party.
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The standard of living of the parties established during the
marriage.
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The economic circumstances of each party including tax
ramifications.
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Whether the party will be serving as the custodian of
dependent minor children.
What qualifies as marital property?
Marital property is defined as property acquired between the
date of marriage and the date of separation. Marital property
includes property acquired after the separation date if the
property was acquired using marital funds.
Marital property does not include: property acquired prior to
marriage and property acquired by gift (except between spouses)
bequest, devise or descent. Most states require that the
aforementioned non-marital property can be considered marital
property if it is co-mingled with marital property.
Is marital misconduct considered in property division?
Generally speaking, marital misconduct occurring during the
marriage is not to be considered in determining the division of
property.
What are the general rules concerning support?
In Pennsylvania there are statutes that stipulate how basic
child support and spousal support (where total income is less
than $15,000 per month) are to be calculated. Support
obligations are calculated using earning capacity, not actual
income.
Deviation from the guidelines is permitted based upon the
following factors: unusual needs, uninsured medical expenses,
ages of the children, assets of the parties, other support
obligations, the standard of living, mortgage obligations in
excess of 25% of net income, best interest of the children.
Because the reasonable needs of the parties and beneficiaries
have been factored into the guidelines, it is no longer
necessary to present a budget of expenses (except to justify a
deviation from the guidelines).
The duration of the marriage is a factor in computing spousal
support.
How is child and spousal support computed in high income cases?
When the aggregate income exceeds the monthly guideline
limitation, the support case is considered outside the
guidelines and support must be computed using the Melzer
formula. This Melzer formula requires determination of the
reasonable needs of the parties as well as the needs of the
children. Accordingly, budgets and supporting documentation are
necessary to support both the needs of obligor, obligee and
children.
Reasonable needs are loosely defined and subject to
interpretation and accordingly, are a commonly litigated area.
What are the tax implications of the distinction of spousal
support verses child support?
Unallocated child and spousal support is fully taxable to the
recipient and deductible to the payor. The child support portion
of an allocated award is non-taxable to the recipient and
non-deductible to the payor.
The courts discretion is broad and typically considers the
parties earnings and tax implications when allocating support.
Mergers and Acquisitions
The purchase or sale of a business is a major financial
transaction, regardless of the size of the business. You should
always retain legal counsel when buying or selling a business.
As accountants and appraisers we can assist is ascertaining a
fair value and we can assist in the accounting, we are not
qualified to protect you from inadvertently purchasing
liabilities that you were not aware of and/or assets that we not
what they are were led to believe.
What the difference between an asset sale and a stock sale?
In an asset purchase, an acquirer purchases (with cash, stock or
property) all, or selected assets of the target. The advantage,
to the purchaser, of an asset sale is an ability to purchase
only the assets that the purchaser wants and only the
liabilities the purchaser is willing to take on.
In a stock sale, the purchaser acquires all assets and
liabilities, including liabilities that may be unknown at the
time of transfer.
Typically the purchaser prefers an asset sale and a seller
prefers a stock sale.
What are the tax ramifications to the seller between the two
types of sales?
In an asset sale, assuming the seller is a corporation, the
corporation recognizes the gain or loss on the sale of the
assets. Effectively the seller pays a double tax on the sale;
one tax at the corporate level and one at the individual level
when the cash is extracted from the corporation.
In a stock sale, the seller recognizes a gain (or loss) on the
sale of their stock and is afforded capital gain treatment on
the sale, at a favorable tax rate.
There are provisions in the tax code that allow, in certain
situations, for tax deferment.
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