Effective data gathering as a forensic accountant will require one to exercise professional
judgment when determining the types of data, one will analyse and when determining
whether the data gathered was sufficient, relevant, and reliable. “Forensic Accountants as
professionals are trained to be proficient in the use of professional skills, core arithmetic,
analytical and investigative skills, and competencies in the assessment of risk factors that
could lead to material misstatement” (N.U., & Okenwa, 2021, 451). Before determining the
types of data, one will analyse a forensic accountant should have an established plan that
factors in any data limitations while outlining detailed tasks and time guidelines with specific
target dates. Recording this plan can provide, “a standard against which to monitor the
progress of the data analysis,” while also providing, “a detailed description of the analysis,”
that allows one to properly identify the data universe and any items of interest, which only
provide further assurance of the sufficiency, relevancy, and reliability of any data gathered
during the process (Rufus et al., 2015, 233). These measures allow the forensic accountant
to begin the data collection process because the data sources and types of engagement will
dictate the means that allows one to accurately prepare the data to be analysed.
Forensic accountants need to have an understanding that, “there are no clear-cut thresholds,”
when determining whether one has sufficient, relevant, and reliable data, but one can get
reasonable assurance by submitting a data request outlining any specific items needed to
record, “in a data inventory and then compiled into a usable form such as a database,” that
allows for the use of various tools that can be applied in the analysis, “such as relationship
charts, link analysis, and timelines” (Rufus et al., 2015, 246). These tools can help with the
discovery process, as it can allow one to segment the data to gain a better understanding of the
evidence being analyzed because of any potential links that can map known or hidden
relationships. Subjective analysis will need to be applied on the end of the forensic accountant
because reasonable assurance can only be provided when one is able to provide basis and
rationale for one’s opinion. “In that role, we independently and objectively develop our
opinions—advocating for the opinion and not the client per se,” which, “does not (and should
not) prohibit a forensic accountant from leveraging this expert’s skills to enhance
management of the case” (Rufus, 2018, 114). A forensic accountant uses data analysis to
determine what the information presents. Often times, there is too much information and it’s
not always relevant, so data analysis helps to identify sufficient and relevant data which can
be used to form a conclusion. The type of data collected and analyzed is often dependent upon
the type of engagement the forensic accountant is performing. This is because the forensic
accountant needs to collect sufficient, relevant, and reliable data to give an opinion and to
support it.
Sufficient data refers to the measure of the quantity of audit evidence, or the forensic
accountant needs to collect enough audit evidence to be able to support the conclusion. In
addition, data needs to be appropriate, which is a measure of the quality of audit evidence.
Appropriateness ensures that the data collected is both relevant and reliable in providing
support for the conclusions reached by the auditor. Relevant data refers to how it connects to
the assertion or objective of the control being tested while reliability is dependent on the
nature and source of the evidence as well as the circumstances under which it is obtained. If a
control is ineffective, then the data or evidence collected from the control is likely to not be
very reliable. Additionally, information collected from an independent third party is more
reliable than evidence only collected from internal company sources. Having sufficient,
relevant, and reliable data to give a testimony is required to provide an expert testimony that
is admissible according to Federal Rules of Evidence Rule 702.
As a forensic accountant, you will have many areas of fraud that you can be looking at. This
is one part of determining what data you will analyse. If you are looking at financial
statement fraud, you will analyse the data used to create the financial statements such as sales
registers, purchasing registers, etc. If you are looking at tax fraud, you are going to want to
look at income statements, expenses created that could be used to reduce the taxable amount,
documentation on deductions, etc. You also want to review bank statements to see if there are
any weird transfers of money to accounts vendors that are not known or used.
To ensure you have reliable data, you must find secondary sources to confirm the amounts
listed such as AR or bank confirmations. You need some sort of outside source to help back
up the data being provided. You should run through the internal controls and reach out to
several employees to test the controls as this would help prevent fraud and give you assurance
that the data is reliable.
Before the forensic accountant can start collecting data, they must first identify the type of
fraud case they are facing within the engagement and what industry is involved. For example,
cases of insurance fraud may call for a different type of evidence than credit card fraud. Once
you have established the kind of fraud, the type of evidence necessary to crack to the case will
become easier to identify. The forensic accountant must also identify which of the four
common types of data sources are necessary in the case: first-party, second-party, third-party,
and/or fourth party. First-party data would be the use of interviews, because these come
directly from the source these are the most relevant. Next, the second-party data is data
collected from a related party. Bank statements are third-party data and can also be reliable.
Lastly, the fourth-party data are sources used for reference. For evidence to be sufficient,
relevant, and reliable it must support the claim(s) and expert opinions presented in the
engagement and afford a reasonable basis for a conclusion.
As a forensic accountant one must consider several factors when considering an engagement.
This includes what kind and how much data to collect for each engagement which is guided
by Federal Rules of Evidence (FRE) 702 and Rule 201 of the American Institute of Certified
Public Accountants (AICPA). However, there is no clear answer to what is sufficient,
relevant, and reliable because each engagement is unique in nature and will require different
levels of information or data (Rufus, Miller, & Hahn, 2015). Therefore, the first step in
gathering data is planning what is required for the engagement to be a success. This could
include first, second, third-, and fourth party information and data which may need to be
sorted through to determine relevancy and reliability for the engagement (Rufus et al, 2015). d
Information received from the start may seem relevant and reliable, but then could result in
misleading data or information after one has done their due diligence of verifying the
information. Additionally, a forensic accountant maybe constrained by time, access to the
information, technical resources, and other data limitations (Rufus et al, 2015).
Consequently, a forensic account must use professional judgement in determining what
consists of sufficient data and information.
Additionally, as a result, data planning, collection, and preparation require analysis to
determine relevance and reliability. Furthermore, an engagement is often related to
analyzing, interpreting, summarizing, and presenting information and data in a format that is
both understood and supported with facts. Therefore, a significant conclusion in an
engagement necessitates the proper analysis and interpretation of various forms of both
quantitative and qualitative data for a successful engagement. Ultimately, the forensic
accountant must base his/her expert opinion on the information and data and be able to
explain if necessary the results of the analysis. The basis should be reasonable to anyone in
the specific field the engagement is involved in. Therefore, the forensic accountant must be
able to justify what is sufficient, relevant, and reliable from the information that is available
and, in some cases, when information or data is lacking. In my opinion, this is why areas of
specialization and knowledge assist the forensic accountant in providing sufficient, relevant,
and reliable information. Plus, the more information one can provide to back an opinion the
less room for objections to occur.
When determining the types of data that will be analyzed, the forensic accountant must keep
in mind the objectives of the engagement. Found in Rule 702 of the FRE and Rule 201 of the
AICPA’s Code of Professional Conduct, the types of data that will be analyzed must be
sufficient in supporting their opinion and relevant to the engagement’s objectives (Rufus et
al., 2014). Under FRE Rule 702, an expert testimony is acceptable if (1) the testimony is
based upon sufficient facts or data, (2) the testimony is the product of reliable principles and
methods, and (3) the principles and methods have been applied reliably to the facts of the case.
According to Rufus et al. (2014), a forensic accountant may not be completely sure that the
data is sufficient, relevant, and reliable and will have to practice professional judgment in
coming to this conclusion. The forensic accountant may feel more confident that the evidence
is sufficient and reliable depending on the source of the information. First-party data offers
the most assurance that data is relevant because the information is directly from the source.
An example of first party data is information from a suspected fraudster. Second-party data
comes from those connected to the subject and may include family members, co-workers, or
vendors (Rufus et al., 2014). Depending on the relationship, the information may be biased,
however, second-party data may be useful because of the firsthand knowledge that they have
(Rufus et al., 2014). Third-party data are from places like financial institutions that keep the
subject’s records. This data can be reliable because it’s from an external source and can’t be
altered by the subject (Rufus et al., 2014). Lastly, fourth-party data are gathered from
reference sources, including academic journals or case law and helps a forensic accountant
understand the subject’s environment. Depending on the quality of the source, this type of
data is not as reliable as the previous three because is put together by people with varying
motivations and are at risk for manipulation and error (Rufus et al., 2014). Perhaps the
combination of several of these sources can give the forensic accountant the most confidence
that the data is sufficient and reliable. For instance, bank statements (third-party) can be
utilized to confirm the validity of first-party documents.
Tracy Coenen, CPA, CFF, MAFF, and the author of Public records in financial investigations,
describes a forensic investigation as examining data and evidence to determine if a fraud has
occurred, how it happened, who was involved, and the value lost. (Fraud Files Forensic
Accounting Blog, 2020)
To gather data or evidence, a forensic accountant should first analyze the type of engagement
or employment; A independent investigator, expert witness, firm, lawyer, government or legal
agency, or perhaps a combination. Subsequently, a forensic accountant would analyze the
engagement objectives such as embezzlement, tax fraud, securities fraud, insurance fraud,
corruption, business valuation, or computer/data forensics.
Next, a forensic accountant should look to the AICPA Code of Professional Conduct, Rule
201 - General Standards .02 201-1. Rule 201 describes competence to complete the
prescribed professional services according to "professional standards, applying his or her
knowledge and skill with reasonable care and diligence, but the member does not assume a
responsibility for the infallibility of knowledge or judgment" (AICPA, n.d.)
Upon accepting an engagement, whether a member of AICPA or not, a fraud examiner can
look to the AICPA professional standards as a "benchmark for evaluating forensic accounting
services." (Rufus, Miller, Hahn, 2014)
(AICPA, n.d.) d describes Rule 201 and how practitioners must "obtain sufficient relevant data
to afford a reasonable basis for conclusions or recommendations in relation to any
professional services performed," while Black's Law describes the term sufficient, with
regard to data, a meaning: "of such quality, number, force, or value as is necessary for a given
purpose." (The Law Dictionary, 2014) and in auditing arenas SAS No. 106, AU Sec. 326
describes sufficient as connected with appropriateness, and as measurements of the quantity
and quality of the audit evidence. (Rufus, Miller, Hahn, 2014)
According to (Rufus, Miller, Hahn, 2014), relevance in forensic accounting is determined by
the engagement's objectives to form a hypothesis to stipulate the course of data collection and
analysis. Black's Law defines relevant data as logically connected, tending to prove or
disprove, and having considerable probative value. (Rufus, Miller, Hahn, 2014)
(Rufus, Miller, Hahn, 2014) describes the reliability of the data as a critical element of
sufficiency and very much related to its source. The four common data sources are as follows:
first-party, second-party, third-party, and fourth-party. First-party data, such as an interview,
are obtained directly from the subject or entity and are often considered the most relevant.
Second-party data describes data from a related party, such as a family member or CPA.
Third-party data such as bank statements are generally considered reliable because the data
derives from outside the control or manipulation of the subject. Third-party data is often
retrieved from public domains such as public legal filings. Fourth-party data describes
reference sources such as case law, academic journals, articles, and databases. While this data
may be highly variable, depending on the quality of the reference source; however, this type
of data can provide reference to certain types of data or potential evidence.
Overall, relevancy depends on the specifics of an engagement, while sufficiency relies on the
availability of data and the degree of proof or evidentiary reliability. (Rufus, Miller, Hahn,
2014)
Before closing, I think it's fair to mention that forensic accountants should consider
consulting a lawyer to ensure they are working within the boundaries of the Law. I believe
reviewing subjects such as subpoenas, warrants, and personal liability would be wise to
protect themselves from lawsuits or perhaps having their professional reputation and career
ruined. Regardless if they are working for a lawyer or not!
According to the DOJ, a search is constitutional if it does not violate a person's "reasonable"
or "legitimate" expectation of privacy. Katz v. United States, 389 US 347, 361 (1967) (Harlan,
J., concurring). This case law embraces two discrete questions: first, whether the individual's
conduct reflects "an actual (subjective) expectation of privacy," and second, whether the
individual's subjective expectation of privacy is "one that society is prepared to recognize as
'reasonable.'" Id. at 361. The DOJ also states, "No bright-line rule indicates whether an
expectation of privacy is constitutionally reasonable." (DOJ, n.d.)
References:
Code of professional conduct - AICPA. (n.d.). Retrieved March 9, 2023, from
https://us.aicpa.org/content/dam/aicpa/research/standards/codeofconduct/downloadabledocu
ments/2013june1codeofprofessionalconduct.pdf
Public records in financial investigations. Fraud Files Forensic Accounting Blog. (2020,
October 28). Retrieved March 9, 2023, from
https://www.sequenceinc.com/fraudfiles/2020/11/public-records-in-financial-investigations/
Rufus, R., Miller, L., & Hahn, W. (2014). Forensic accounting. Upper Saddle River, NJ:
Pearson Education.
Searching and seizing computers and Obtaining electronic ... (n.d.). Retrieved April 11, 2021,
from https://www.justice.gov/sites/default/files/criminal-
ccips/legacy/2015/01/14/ssmanual2009.pdf
Sufficient definition & meaning - black's law dictionary. The Law Dictionary. (2014, April 6).
Retrieved March 9, 2023, from https://thelawdictionary.org/sufficient/
Rufus, R., Miller, L., & Hahn, W. (2014). Forensic accounting. Upper Saddle River, NJ:
Pearson Education.
Rufus, R. J., Miller, L. S., & Hahn, W. (2015). Forensic accounting. Boston, MA: Pearson.
Robert Rufus, L. M. (2015). Transforming Data into Evidence (Part 1). In L. M. Robert
Rufus, Forensic Accounting 1st Edition. Pearson Education.
PCAOB. Accessed March 9, 2023. Auditing Standard No. 15.
https://pcaobus.org/oversight/standards/archived-standards/pre-reorganized-auditing-
standards-interpretations/details/auditing-standard-no-
15_1787#:~:text=Appropriateness%20is%20the%20measure%20of,the%20auditor's%20opin
ion%20is%20based.
Rufus, R., Miller, L., Hahn, W. (2015). Forensic Accounting. Pearson Education.
J., N. U., & Okenwa, O. C. (2021). Effective Deploy of Digital Forensic Techniques and the
Sustenance of Material Misstatement-Free Financial Reporting in Nigeria. Journal of
Academic Research in Economics, 13(3), 442–478.
Rufus, R. J. (2018). The 3 W’s of Engaging a Forensic Accountant: Why, When, and Who.
American Journal of Family Law, 32(3), 108–114.
Rufus, R., Miller, L., & Hahn, W. (2015). Forensic Accounting. Pearson Education, Inc.
