Unfortunately, disasters do not follow a predictable course. Businesses are continually being affected by floods, earthquakes, hurricanes and fires. The recovery for a company after such disastrous events can be a tremendous challenge as they sort through complex issues including suppliers, employees, inventory, and more. Forensic accountants offer vital help in the recovery process for both companies as well as the insurers who cover them.
Experienced forensic accountants can make the disaster recovery process much easier for all parties involved. After a claim has been filed, an insurer will need specialized assistance to analyze and measure the costs of the damages.
Insurance policies vary, but they usually cover a range of categories for damage, each with its own list of requirements. A forensic accountant will analyze the data in conjunction with the coverage that the business has.
As an example: If the property is damaged, it will require one type of analysis while business interruption will require something entirely different. With most companies having a combination of applicable policies available, the forensic accountant’s job is to sort through the various losses and determine which falls into the correct claiming category.
Using widely accepted methods for analyzing business and calculating their projected losses, forensic accountants use historical data as a solid starting point. The older the company, the better the records are for planning a reasonable estimate. Unfortunately, even with a long and well-documented history, a projection cannot be made merely on old data alone. The forensic accountant must also take into consideration the trends, industry, and market conditions.
The forensic accountant must create a model of the business as well as prepare a business interruption calculation to estimate the proper amount of lost earnings.
This calculation is created with a combination of different components, including:
- Lost revenue
- Historical trends
- Unperformed contracts created from the disaster
- Actual results from other (unaffected) business locations
- Costs associated with the loss including extra staffing and resuming operations
- Costs to resume activities
- Emergency measures that were taken to avoid critical agreement breaches
- All of the expenses caused by being shutdown
Together all of these factors help to determine the estimated loss during the period.
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