Quantifying loss

The shocking news from Nepal and the extent of the devastation and loss of life the earthquake has served is a stark reminder that human beings are at the mercy of ‘acts of god’ such as this.  We are lucky in this country that we don’t suffer from such extremes but businesses and individuals are still affected on a daily basis by such events as floods and fires, the consequences of which need to be put right, which is where forensic accountants can come in.

When such an event occurs, and everything has been put to rights, the person who has suffered a loss will generally call in the insurance company and they will assess the damage and quantify the loss. The forensic accountant will not be involved in determining how much money the claimant should get but, when a business is claiming, they will work with the insurers to evaluate the loss of profit arising as a result of the business interruption. The forensic accountant will not assume that there has been any loss of profit due to the business interruption but will consider other possibilities such as a straightforward loss of market share to a competitor.
 
Meanwhile, if the loss is caused by something else, such as theft, then the forensic accountant will review inventory or cash records and details of sales and purchases to reconcile the amounts held and determine the value of the goods or cash stolen. They will also test the reliability of the information held by counting a sample of inventory or cash currently held in comparison with the client’s records.

Author: Roger Isaacs, 5 May 2015

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