Forensic accounting is the practice of binding together accounting and auditing with investigative skills to assist in legal matters. It is primarily used in areas such as litigation support, investigation, and dispute resolution.

 

The accident report concluded that the driver of the approaching car was slightly intoxicated and driving too fast. Therefore he, as well as the owner of the horse, became a defendant.

Dr. Huang, who was 56 at the time of the accident, suffered neck and back injuries that forced him to work fewer hours a day at his dental practice. Using figures calculated by a major accounting firm, Dr. Huang issued a £2 million lawsuit for loss of past and future earnings against the driver of the approaching car and the owner of the horse. The Forensic Accountant was retained by lawyers for both defendants (the driver of the car was the Forensic Accountant's primary client) to examine the validity of the claim.

Methodology

The plaintiff's report concluded that Dr. Huang had to reduce his work day from eight to six hours following the accident. The accountants calculated an hourly rate for his services and multiplied it by the reduced number of hours he would work from the age of 56 to retirement. They also factored in a figure for anticipated growth of income that was prescribed by the National Dental Association.

Upon studying the report it was realised it contained a major flaw. Dentists are not paid by the hour but by the service rendered. Therefore, Dr. Huang's loss should be calculated on the reduction, if any, of patients visits. It was also noticed in the examination for discovery that Dr. Huang had made a written declaration that although he now worked two hours fewer a day, he saw more patients per hour than he had before the accident. In other words, he now worked a six hour day but treated - and billed - almost the same number of patients as he had in eight hours before. The analysis of his records itemised that: before the accident he saw, on average, 80 patients a week, and now he saw 72, approximately a 10% drop in patient visits a week. His total loss from the time of the accident to retirement was determined as £200,000.

Result

Dr. Huang accepted a settlement of £200,000. The owner of the horse paid 90%. The cost to the primary client (his impairment was secondary to the accident) was approximately £20,000, plus his share of costs.