Article by Paul Seaward FCA, Director, PKF (Isle of Man) LLC
Offshore jurisdictions such as the Isle of Man are often used by wealthy families and international companies to mitigate their tax exposure and as a consequence company and trust structures are formed to own and manage assets in various jurisdictions. By far the majority of such arrangements proceed to the reasonable satisfaction of all the parties. Unfortunately, in life people fall out or are, or come to believe that they have been, badly advised, misled or cheated by people they do business with or employ. Very often the dispute has an accounting dimension, and forensic accountants have been used for many years to assist with financial investigations, help resolve disputes and act as expert witnesses.
What has changed in recent years is that the Isle of Man, in further developing its role as a highly regulated and responsible environment, has moved towards the provision of more effective remedies for the clients of fiduciary service providers who are aggrieved with the conduct of directors and others. For example, under the Company Officers (Disqualification) Act, 2009, any past or present member or creditor of any company may be able to apply for a disqualification order, and the Companies Act, 2006, contains provision for derivative actions. In this new environment it has therefore become more important than ever for fiduciary service providers to be worthy of the trust of their clients, and this involves maintaining good and transparent relationships, and being able to account promptly and properly for transactions, and the assets entrusted to their care.
This new environment is likely to create exciting new challenges for forensic accountants. Where relationships become strained, and the degree of trust existing between the parties is not all it should be, the use of an independent external forensic accountant can help to resolve disputes and facilitate settlement by showing clearly the true position to all concerned, and thereby avoiding costly Court proceedings. And if all else fails, and there is resort to litigation, an independent forensic accountant can demonstrate the position to the Court by formal report conforming with the form and content requirements of the Rules of the High Court of Justice 2009, and, if it goes to trial, by appearing in Court as an expert witness.
To be effective, the forensic accountant must not only be independent but must be seen to be independent. It is part of any accountant's role as such to create confidence in financial information and in that respect the forensic accountant is no different. He cannot do so properly unless he commands the credibility of all the parties. For these reasons the accountants previously employed by one of the parties to the dispute may not be the best option when choosing a forensic accountant.
A forensic accountant is an expert, and it is a sine qua non that he must have experience and expertise in the areas where he gives evidence. If he feels that he is not an expert in the relevant field, obviously he cannot act as such. Areas of expertise required might include tax, including direct and indirect taxes of the Isle of Man, fiduciary services in the Isle of Man, and other aspects of Isle of Man practice. It follows that it will be Isle of Man accountants who will be faced with most of the challenges arising from the changing business environment.
PKF (Isle of Man) LLC is a member firm of the PKF International Limited network of legally independent member firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.