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 in order 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. z
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. z 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 considered to be the most
relevant. Next, the second-party data is data collected from a related party. Bank statements are
considered to be third-party data and can also be considered to be reliable. Lastly, the fourth-party data
are sources used for reference. In order 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. z 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). z 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. z
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. z 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.
Reference
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%20opinion%20i
s%20based.
Rufus, R., Miller, L., Hahn, W. (2015). Forensic Accounting. Pearson Education.
