One of the main roles of forensic accountants is to assess the economic loss suffered by individuals and organizations as a result of accidents and incidents. This typically involves calculating how much money has been lost due to factors such as medical expenses, reduced earning capacity, property damage, legal costs, and so on.
Forensic accountants assist with a claim coming from personal injury where a loss is sustained by self-employed or business owners or employees with complicated salary packages. This is also applicable where the loss is sustained by businesses instead of owners or managers. Forensic accountants will assess all aspects of the economic loss and report on a suitable figure that can be claimed.
All records must be carefully reviewed to ensure an accurate calculation of the loss. This will often involve going through tax returns, financial statements, payroll records, and other documentation. Forensic accountants are often needed where an accident led to death or the inability to continue the same work after the accident. They will assess the economic consequences of the accident by estimating the future earnings that would have been earned had the accident not occurred. They will also look at other benefits that may have been received, such as pension rights and healthcare.
A claimant’s lost earnings assessment should include:
- future income or earnings if the accident didn’t occur
- actual earnings after the accident
- residual earnings capacity that could have been attained with intervention
- Offset for any savings in personal expenses that are no longer attained
- Costs acquired from increased education or retraining
A forensic accountant will also take into account any benefits the claimant is receiving as a result of the accident, such as disability payments or workers’ compensation. They will also look at other factors, such as the impact on the claimant’s quality of life, to come up with a comprehensive assessment of the economic loss suffered.
An Income Tax return doesn’t always decide the future.
It may be important to understand what a claimant has historically earned through their Income Tax returns when assessing past and future losses, the forensic accountant knows that these earnings don’t always reflect a claimant’s potential earning capacity. A forensic accountant will also consider the claimant’s role in the workforce and the sum of money the claimant would have had. A claimant’s earnings can be affected by economic factors, career progression, and industry-based factors.
A forensic accountant will also take into account the claimant’s age, health, and skillset when assessing their future earnings. All of these factors can affect how much money a claimant could earn in the future and need to be considered when assessing economic loss. Forensic accountants must also assess multiple information sources including salary surveys, award rates, statistical information, employment contracts, etc. before they can make an accurate assessment of the claimant’s future loss of earnings.
At its core, forensic accounting is all about accurately assessing economic losses that may result from accidents or incidents in the workplace. A key part of this process involves evaluating a claimant’s future earnings potential, as well as any other factors that could potentially affect their ability to earn income.
Accidents happen all the time. Personal injury refers to an injury sustained to the body, mind, and or emotions. This legal term is most commonly used to refer to a claim claiming that the plaintiff’s injury has been caused by the negligence of another. Typical personal injury comes from accidents in the workplace, road traffic, and assault. Furthermore, personal injury also refers to medical issues due to medical negligence or industrial diseases.
A personal injury can have a significant impact on an individual’s life. An injury can cause physical pain and suffering, emotional distress, and financial hardship. It is important to document the damages caused by the injury to receive compensation from the liable party.
For claimants whose compensations are from employee wages and employer-paid benefits, these details are may be beneficial in determining the claimant’s earnings had the accident not happened:
- Educational achievement and expected future education
- Work history, including promotions and salary increases
- Expected retirement date
- Income Tax Returns Copies with supporting attachments and schedules
- Pension documents
- Payslip copies
- Personnel file, including written agreements for incentive-based pay
- Employee benefit guide
- Medical records documenting any previous injuries or conditions
- Records of other legal actions in which the claimant was involved
For claimants who are self-employed or own their businesses, information such as business ownership documents, Income Tax Returns for the business with supporting attachments, and schedules and Accounting records.
Earnings for an injured claimant must be adjusted for costs related to their work that are no longer being incurred. These could be commuting costs, professional memberships and/or training, and income taxes with certain conditions.
In some cases, other employment-related costs may also be included in the analysis. The documentation required to support a personal injury loss claim will vary depending on the jurisdiction in which the case is being tried, as well as the specific facts and circumstances of the case. However, there are certain types of documentation that are typically required in most personal injury cases.
Personal Injury claims are not taxable. The basis of personal injury compensation is to reinstate the injured individual to the position they would have been if not for the accident.
This means that the lump sum payments earned in connection to personal injury actions aren’t taxable as the claimant receives them. To reinstate the claimant to their financial position if not for the accident, the forensic accountant will calculate a claimant’s economic loss on an after-tax basis.
An injured individual’s entitlement to compensation will rely on where and how they became injured.
Personal injury claims can be complex and often involve a wide range of economic and non-economic losses. As forensic accountants, their role is to accurately assess the financial impact of these injuries on claimants and help them recover the maximum amount possible in compensation.
You must understand that each claim is distinct and the courts will consider all of the related information before deciding. Since no claimant is the same, each claim will be considered based on the claimant. Hence, it is important to take time and be patient to gather the needed evidence.