Often when requesting a business valuation the question of the need for forensic accounting will come up. 

Forensic accounting is the investigation into accounting records to determine accuracy.

Technically,  it is not part of a business valuation but it is often done at the same time.  A business valuation can only be as accurate as the information it is based on.  While forensic accounting is similar to an audit in some ways, the purpose is usually not to give an opinion of the company financials as a whole.  The forensic assignment may be quite broad like an audit or it may be defined such as finding mis-labeled personal benefits.

In many cases,  the parties that are going to use the business valuation do not trust each other and maybe should not trust one another.

When performing forensic accounting the investigator (who may or may not be the valuation analyst) goes through the records of the company using both old style bank statement reviews, and modern software to identify key words and the like.

For instance perhaps a diamond ring was purchased for a girlfriend of the owner and it is shown as a marketing expense of the business.  This would have to be adjusted as it is a benefit or distribution to the owner and would act to increase business profitability and business value.

Forensic reviews, particularly open ended investigations can be quite expensive and impossible to quote on a fixed fee.  Since the reviewer does not know what will be found it is not possible to know the amount and type of work required.

But, in some situations forensic accounting is an important investment to fully protect your interests.

 


Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver the highest price in the smoothest sale transaction possible. Harvest provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

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