The value of forensic accountants in litigation

In brief

Forensic accountants are qualified accountants highly skilled in analysing, interpreting and presenting financial information for the purpose of court proceedings. This article summarises the role of forensic accountants and some of the key considerations when instructing them.

The value of forensic accountants in litigation

In an institutional risk and liability claim, a forensic accountant can be utilised to quantify the past and future economic loss in a plaintiff's claim. 

In preparing their report for the Court, depending on specific instructions, a forensic accountant may look at:

1. the earning capacity of the individual which includes a review of historical taxation records, self-employment and business records (if applicable), and payslips;

2. the cost of any future medical expenses projected over the individuals' expected life; 

3. the cost of any household services that the plaintiff required or will require; 

4. the cost of any out of pocket expenses accrued.

Background of experts

It is important when instructing a forensic accountant to consider their background and work history. 

For example, a forensic accountant who has previously worked or specialised in the same field as the plaintiff will be able to provide additional expert insight on the thresholds, key performance indicators and likely career progression in that industry or position. 

In Lonergan v Trustees of the Sisters of St Joseph [2022] VSCA 208 the plaintiff claimed loss on the basis that he would have continued in a farming business. The defendant instructed Mr Richard Ivey as a forensic accountant who had a background in agricultural business, holding a degree in agricultural science and a post-graduate diploma in agricultural economics. 

Mr Ivey was accepted by the Court at the initial hearing and on appeal on the basis that Mr Ivey:

1. used discounted weekly earning figures; 

2. made appropriate allowance for non-tax benefits received by the plaintiff;

3. made appropriate adjustments for the farm management deposit and instant asset write-offs;

4. projected future farm earnings based on the average of the previous three years; and

5. set out his calculations transparently in his report. 

Factual assumptions

When instructing a forensic accountant, the plaintiff or defendant will need to instruct the expert on a number of matters, including:

1. what occupation the plaintiff would have worked in;

2. whether the plaintiff would have worked until the age of retirement; 

3. if the plaintiff would have taken any periods off work.

In Sutton v Hunter [2021] QSC 249, the plaintiff's forensic accounting expert relied on assumptions which were not proved or shown to form a proper basis for the opinions. This included whether the plaintiff would have been employed as a marketing manager or business development manager. It was also noted that the material relied on, being Hays Salary Surveys, IML Salary Surveys and Australian Tax Office statistics were not proved or in evidence. The court ultimately rejected the forensic report.