Forensic Economic Examinations: Accounting, Financial, and Tax
Forensic Economic Examination
This domain tests the ability to trace money and records. Accounting examination checks bookkeeping and reporting; financial examination analyses solvency, cash flow, and financial condition; tax examination checks tax base, deductions, and liabilities.
Core rules
- Use primary documents, ledgers, bank statements, contracts, and tax returns; reconcile them.
- Distinguish forensic accounting from audit: the expert answers specific questions, not a general audit opinion.
- State the period, entity, and data sources; note missing records and their effect.
- Tax: separate calculation from legal qualification; the expert may calculate liabilities but not decide criminal intent.
- Financial: use ratios and cash-flow analysis; explain assumptions.
Worked example
A company is accused of understating VAT. The expert reconciles sales invoices, bank receipts, and VAT returns for the period. If receipts exceed declared sales, the expert calculates the difference and the tax effect, but states that the legal characterization of evasion is for the court. The reasoning shows the link from documents to calculation.
Traps
- Accepting management accounts without primary documents.
- Giving a legal opinion on tax evasion.
- Ignoring the period or entity boundaries.
- Double-counting transactions.