3Ed_CCH_Forensic_Investigative_Accounting_Ch11

3Ed_CCH_Forensic_Investigative_Accounting_Ch11 - Forensic...

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Unformatted text preview: Forensic and Investigative Accounting Chapter 11 Litigation Support in Special Situations 2007 CCH. All Rights Reserved. 4025 W. Peterson Ave. Chicago, IL 60646-6085 1 800 248 3248 www.CCHGroup.com Antitrust Laws Antitrust laws are an outgrowth of the early years of the Industrial Age in the United States when a small number of powerful businessmen used any tactic at their disposal to force competitors out of business. Because such business practices were not in the best interest of the country, federal legislation was passed that prohibits the formation and continuation of monopolies except when in the best interest of the public. Chapter 11 Forensic and Investigative Accounting 2 Role of Accountants in Antitrust Litigation Accountants may be called upon to determine whether there is liability under the antitrust laws. The primary issue that forensic accountants address is whether the defendant has engaged in predatory pricing. Chapter 11 Forensic and Investigative Accounting 3 Predatory Pricing Predatory pricing is the act of pricing a product so low that the only logical explanation is that the pricing is designed to drive competitors out of business. The operational definition is whether a company prices its products or services below "average variable cost" and, if so, predatory pricing is present. Chapter 11 Forensic and Investigative Accounting 4 Estimating Cost Behavior Patterns Graphic analysis and high-low method Regression/correlation analysis Simple linear regression Variables Least squares regression line Standard error of the estimate (continued on next slide) Chapter 11 Forensic and Investigative Accounting 5 Estimating Cost Behavior Patterns Correlation analysis Coefficient of correlation Coefficient of determination Coefficient of nondetermination Association vs. causation Movements in the independent variable Reasons for the unexpected Chapter 11 Forensic and Investigative Accounting 6 Reasons for the Unexpected Some of the accounting reasons that regressions may yield unexpected or perplexing results include: Allocations. Transfer prices. Entity concept. Accounting policies. Forensic accountants must be adequately informed about the nature and operation of the accounting system for each and every business that they are evaluating. Chapter 11 Forensic and Investigative Accounting 7 Federal False Claims Act The Federal False Claims Act was passed to protect the government from the unscrupulous acts of a few government contractors that intentionally or carelessly overcharge the government for goods or services. Chapter 11 Forensic and Investigative Accounting 8 Federal False Claims Act Litigation Fraud allegations Whistleblower allegations Qui tam suits Reasons for bringing action Chapter 11 Forensic and Investigative Accounting 9 Accountant's Role in Federal False Claims Act Litigation Accountants may act as an expert witness for the defense, the government, or a whistleblower litigating the qui tam parts of the case. (continued on next slide) Chapter 11 Forensic and Investigative Accounting 10 Accountant's Role in Federal False Claims Act Litigation Typical questions that accountants help courts to answer are: What costs should be included in the contract? How should costs be measured under the contract? What is the correct timing of the costs and/or revenues under the contract? What accounting concepts, rules, etc., apply under this contract? What is the magnitude of the damages that occurred because of the fraud that took place? (continued on next slide) Chapter 11 Forensic and Investigative Accounting 11 Accountant's Role in Federal False Claims Act Litigation Under the Federal False Claims Act, a person acts knowingly with respect to information if the person has: Actual knowledge of information. Acts in deliberate ignorance of the truth or falsity of the information. Acts in reckless disregard of the truth or falsity of the information. Chapter 11 Forensic and Investigative Accounting 12 ...
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