This is in response to what I feel is a very misleading, disingenuous and self-serving article that was recently published in this periodical about the relationship between business appraisers and forensic accountants. And now, let me tell you how I really feel!
In that article, the contention was made that forensic accountants are "most definitely advocates" for clients, and "[t]here is no question that a forensic accountant who is under orders to find the money has a bias for the client." These are certainly very strong statements. However, nothing could be further from the truth. The preponderance of accountants who engage in forensic accounting are certified public accountants, and CPAs who perform this service are only interested in searching for the truth.
A forensic accounting engagement normally entails finding assets or income that have been diverted or otherwise hidden, uncovering improper expenditures or use of financial resources, or detecting false or misleading financial information contained in reports or other documents. As correctly pointed out in the above-referenced article, forensic accounting may be indicated in litigation matters, such as in divorces, disputes between partners or shareholders and bankruptcy actions. In these matters, and in virtually every other forensic accounting situation, the job of the CPA (to repeat) is to look for the truth, without bias.
The forensic accountant, given that he or she is able to obtain sufficient data by available means, will arrive at one or more conclusions or opinions. Since the CPA is only searching for the truth, based on the evidence, he or she must remain objective at all times and not be influenced by the desires of the client or client's counsel, even though it is the client who is usually paying the accountant's fees. If the CPA does not maintain objectivity, he or she will be discredited sooner or later.
Certainly, gaps often occur in the data obtained and, if feasible, assumptions may need to be made, but those assumptions must be reasonable and should be disclosed. Thus, the conclusions or opinions reached by the forensic accountant must be solely his or her own and be based on available evidence and, when necessary, on appropriate and reasonable assumptions that are applied judiciously.
As a result, there is no ethical or other reason that a forensic accountant can't also perform business valuations for a client or that a qualified business appraiser can't also do forensic accounting work for a client. A credentialed business appraiser is bound by standards that require that he or she be a disinterested party, which means, among other things, that the appraiser cannot have any direct or indirect interest in the business that is being appraised and that the fees charged have no bearing on the results of the valuation. (If a CPA performs attest functions relative to a client's financial statements, e.g. issues an audit or review report on the financial statements, then that CPA's independence could be impaired if he or she performs a business valuation, and almost certainly would be impaired if he or she were to agree to be an expert witness in a litigation matter involving the client.)
The forensic accountant who is a CPA, which is most often the case, must, in virtually all circumstances, be objective and not an advocate for the client. So, the comments made in the above-referenced article, by a non-CPA business appraiser, about a forensic accountant being an advocate for the client, incorrectly purports that such accountant should not also perform a business valuation for that client.
In reality, often in litigation settings, such as in economic damage calculations based on the diminution of business value, or in divorces, the CPA who performs the business valuation simultaneously performs forensic functions by looking for irregularities or other aberrations that may exist in the business's books and records. By combining these two functions, the accountant-appraiser attempts to arrive at the most meaningful and supportable conclusion or opinion as possible.
The other misleading impression presented in the above-referenced article is that the Institute of Business Appraisers ("IBA") and the American Society of Appraisers ("ASA") are the only worthy or reputable organizations for credentialing business valuators. Although the IBA and ASA are in fact very prestigious organizations, they are not the only ones. The American Institute of Certified Public Accountants, issues the certification titled Accredited Business Valuator to those meeting rigorous qualifications, and the National Association of Valuation Analysts ("NCVA") bestows the credential Certified Valuation Analyst to CPAs who qualify under NCVA's requirements.
Yes, I hold the latter two designations, while the author of the other article holds the Master Certified Business Appraiser designation from the IBA, but an appraiser's level of competence is not determined solely by the credentials held, but rather by thoroughness, experience and sagacity. Qualities such as these also apply in distinguishing levels of competence among those in other professions, business owners and managers, and virtually everyone else in the work force for that matter.
When selecting a business appraiser, or a forensic accountant, you should look at all of that person's credentials, obtain references and, probably most important, make certain that you feel comfortable working with that person.
Richard M. Teichner, CPA/ABV (Accredited in Business Valuation), Certified Valuation Analyst and Certified Divorce Financial Analyst, is the director in charge of litigation consulting and business valuation services with the public accounting firm Barnard, Vogler & Co. in Reno. Contact him at rteichner@barnardvoglerco.com or 786-6141.
