As forensic accountants, in undertaking a valuation of a business for family law purposes, or any purpose for that matter, we have a professional responsibility to consider all the facts and circumstances surrounding the particular business to ensure that our expert reports are relevant, appropriate in the circumstances and take into account ALL relevant factors to ensure meaningful advice is provided to a wide range of stakeholder and other parties, including the Court.
Therefore, whilst, it would be remiss of us not to consider any legitimate effects of the GFC on a business, equally, we also have a professional obligation to GFC, i.e. Get it Fundamentally Correct.
Typically, we find that one party to the relationship is the key business driver and it is this person who often seeks to “minimise” the value of the business in conjunction with their professional advisors, to the detriment of the other party to the proceedings.
Where are we seeing “adjustments” being made or closer scrutiny being required?
- Acquisition of items of plant and equipment that are subsequently expensed,
- Pre-payment of expenses, i.e. rent and other lease commitments,
- Deferment of sales to impact on turnover,
- Loss of interest and drive in the business, (note, this maybe a genuine loss),
- Purposely running the business down, thereby causing the business value to be eroded,
- Manipulation of inventory items, i.e. running down stock levels or writing off stock that may not be obsolescent,
- Putting private expenses thru the business,
- Cash sales not being recorded,
- Non-commercial rates of salary, super and other benefits being provided,
- Sale of the business for undervalue and/or to a non-arm’s length purchaser,
- Adoption of the tax depreciated written down value of plant and equipment, rather than looking at the “going concern” value.
I would also caution professional advisors (i.e. the accountant to the businessas an example) should consider carefully a situation where they purport to act in both parties interest, when clearly they are not.
I cannot emphasis strongly enough the importance of seeking independent professional advice, i.e. a solicitor specialising in family law to ensure the interests of all parties to family law proceedings are looked after.
Steven D Ponsonby is a Chartered Accountant CA, a Certified Fraud Examiner CFE and Insolvency Practitioner IP and is the founding Director of Forensic Accounting QLD, a specialist Forensic Accounting practice based in Queensland and can be contacted via www.faqld.com.au.
Good article Steve, keep them coming!
ReplyDeleteJoel B.
Hi Steven, Can you tell me something more about family law act? reply me soon..I regards you in advance.Advice Family Law
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