Types of Litigation Involving Financial Statements

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Litigation and Controversies Criminal Law White collar defense

1 DAVID W. WHITE Types of Litigation Involving Financial Statements Business Litigation Damages Lost profits Shareholder disputes Breach of contract Transactions Receiver Banking and Financial Litigation Tax Litigation and Controversies Criminal Law White collar defense Restitution Consumer protection Punitive Damages Probate Intestate Buy/Sell Agreements Family Law / Divorce Division of assets Child support Maintenance 2 1

2 What Is A Financial Statement? A Formal Record of Financial Status a. Individual b. Entity Snapshot as of a Given Date 3 Types of Financial Statements 1. Statement of Financial Condition (Balance Sheet) 2. Income Statement (Profit & Loss Statement) 3. Cash Flow Statement 4 2

3 Statement of Financial Position (Balance Sheet) A still financial picture of the business on a given date. 1. Assets 2. Liabilities 3. Equity 5 Types of Assets 1. Tangible & Intangible Property 2. Inventory 3. Trade Receivables 4. Cash & Cash Equivalents 6 3

4 ANY SMALL BUSINESS, INC. Balance Sheet December 31, 2015 ASSETS Current Assets: Cash on hand and in banks. $17,280 Notes receivable $19,280 Less notes discounted 12,000 7,280 Accounts receivable.. $87,780 Less reserve for bad debts 7,500 80,280 Inventories. 41,450 Prepayment of expenses 5,088 Plant and equipment: Total Current Assets $151,468 Intangibles Land and building. $57,980 Equipment, fixtures and furniture 19,200 Less allowance for depreciation 15,800 61,380 Goodwill.. 2,000 Patents 2,000 4,000 Total Assets $216,848 7 Liabilities Trade or Other Payables Short-Term Borrowings Long-Term Borrowings Current Tax Payables 8 4

5 ANY SMALL BUSINESS, INC. Balance Sheet December 31, 2015 LIABILITIES Current Liabilities: Notes payable (bank).. $18,000 Accounts payable (trade) 41,288 Taxes payable.. 14,400 Other payables... 5,280 Total current liabilities. $76,968 Long term debt.... $ -0- Total Liabilities $76,968 9 Equity Assets of the business minus its liabilities equal equity. Equity is the investment of the owner plus any accumulated profits or losses. Share capital Retained Earnings Revaluation Reserve 10 5

6 ANY SMALL BUSINESS, INC. Balance Sheet December 31, 2015 CAPITAL Capital stock.. $ 100,000 Surplus 39,980 Total Equity or Net Worth. 139,880 Total Liabilities and Capital... $215, Income Statement (Profit & Loss Statement) A moving picture of expenses against revenues over a period of time to show net profit or loss. Revenue Cost of Sales Other Income Distribution Cost Administrative Expenses Other Expenses Finance Charges Income Tax 12 6

7 ANY SMALL BUSINESS, INC. Profit-and-Loss Statement December 31, 2015 Item Amount Percent Gross Sales... $773,888 Less returns, allowances and cash discounts.. 14,872 Net sales $759, Cost of goods sold 589, Gross profit on sales. $169, Selling expenses... 41, Administrative expenses.. 28, General expenses. 50, Financial expenses 5, Total expenses.. 125, Operating profit.. 44, Extraordinary expenses 1, Net profit before taxes.. 43, Federal, state and local taxes.. 19, Net profit after taxes... 23, Income Statement Comparisons Comparison made to prior accounting periods 1. Same period in prior year 2. Last prior period 3. Year-to-Date 4. Financial Ratios 14 7

Statement of Cash Flow Shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing

8 Statement of Cash Flow Shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. Cash Flows from Operating Activities Cash Flows From Inventory Activities Cash Flow from Financing Activities Net Income in Cash & Cash Equivalents 15 Statement of Cash Flow 16 8

Equipment Collateral Tax Returns Personal W-2 K-1 Corporate Extensions Final Returns from IRS Bank Documents Account Statements Loan

9 Follow the Money Revenue Company Bank W-2 K-1 Operating Expenses Owner Benefit Personal Bank 17 Types of Documents to Look For Financial Statements Balance Sheet Profit & Loss Statement General Ledger Accountant & CPA Documents Work Papers Audit Appraisals Real Property Equipment Collateral Tax Returns Personal W-2 K-1 Corporate Extensions Final Returns from IRS Bank Documents Account Statements Loan Applications Loan Documents Personal Financial Statements Business Financial Statements New Account Documents Documents from Other Litigation 18 9

Useful Tools and Methods Client Documents

Subpoena Business Record Subpoena Subpoena

10 Useful Tools and Methods Client Documents Shareholder Disclosure Statutes Discovery Interrogatories Document Requests Request for Admissions Deposition Third-party Subpoena Business Record Subpoena Subpoena Duces Tecum Witness Testimony Cross Examination

Forensic Accounting, Litigation Support and Advisory Services for Law Firms

Forensic Accounting, Litigation Support and Advisory Services for Law Firms For more than 40 years, J. Allen Kosowsky has provided accounting and advisory services to domestic and international law firms,