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.
