Forensic vs. Valuation

Occasionally during the course of preparing a business valuation we are told the financial statements provided may not be reliable…now what? The worst case scenario is that we have wasted our time and your money to produce something that may be inaccurate. The best case is that we can make a few adjustments and salvage the work performed.

One of the basic assumptions we make in preparing a business valuation is that the information provided to us is fairly stated. We are not expecting to perform any forensic accounting procedures nor are we auditing the financial information we receive. We rely on management and the external accountants to prepare accurate financial information.

It is important to make the distinction between a business valuation and a forensic analysis of a company’s accounts – a valuation involves a detailed analysis of the company (both financial and operational) whereas a forensic analysis is a detailed review of financial transactions. A forensic review can be an extremely time-consuming and expensive endeavor. That is not to say that forensic analysis should be avoided – in fact, some situations require it. It is just important to note that if you have engaged a business valuator to value your business, a forensic analysis will not be automatically done.