Loss Quantification

This article discusses loss quantification in forensic accounting and the role of an expert witness in the court of law. It also covers the potential claims and steps to quantify each element of the claim. Additionally, it provides financial information that would be of assistance in determining the amount of loss suffered.

Loss Quantification
Loss Quantification
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Loss Quantification
1. My general role as a potential expert witness involved in this matter
A witness is a person who testifies in the court of law. An expert witness is therefore an
individual who testifies in the court of law because the individual is believed to be an expertise
in the matter of interest (McKendrick,2014). The whole incidence involves determining the work
of forensic accountant .Generally forensic accounting involves application of appropriate
techniques that focuses to undertake acceptable concepts needed in carrying out legal claims. It
mostly occurs due increased claims in business such as embezzlement of financial funds and
increased illegal business within the market place.
In the case the role of the expert will comply with the function of the forensic accountant in fraud
determination. The expert will assist in providing all the relevant information that will guide in
trial.
Role of the expert in the trial.
 Carrying out the litigation process in the business. The expert will give any documentary
evidence which shows that PEL was involved in providing the XY256 chemical additive
to the AIH. The document gives the evidence that will support or assist in rebut of the
claim in the court (Singleton & Singleton, 2010).
 Assisting in fraud detection. The expert will provide appropriate questions on why the
PEL decided to use the defective chemical to the AIH.The court will rule in favour of the
evidence about the use of defective XY256 chemical additive.
 Giving the court the evidence on the use of XY256 chemical additive. The expert
provides samples from the CF which they claimed had the XY256 chemical additive.
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Loss Quantification
 Preparing a balanced report that accounts for the use of XY256 chemical additive. It is
based on thorough examination carried out by the expert regarding the supply of XY256
chemical additive by PEL.The report gives the reasons why PEL tried to use the chemical
knowing that it will cause damages to the candles produced by the AIH.
 Investigating the major claims based on the customer fraud.CF got claims from their
customers complaining for the use of XY256 chemical additive. Therefore the expert in
the court will try to table all documentaries revealing the use of XY256 chemical additive
by the AIH (Modugu & Anyaduba,2013).
 Collecting relevant data regarding the supply of defective chemicals by the PEL.The
expert will help the AIH in the court by giving apt data which shows that PEL was
involved in illegal business. The compensation will be guaranteed to both CF and AIH if
only the expert tables the apt evidence in the court (Cain, 2014).
2. Review on the claims to arise based on the facts at hand
One of the claims that would obviously arise from this issue is that AHI would try to sue
PEL for the damages that it has incurred as a result of the XY256 chemical additive that caused
an unpleasant odor to be produced some hours eight hours after it had already been used from the
candle residue. Well, this particular claim is not a breach of contract but rather a mere tort claim
(Low, Bordia, Bordia, 2016). It is a tort claim that seeks to obtain what can be regarded as a civil
remedy, for instance the damages that AHI suffered after losing its main customer and the safe
environmental disposal issue (Branson, 2011).
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Loss Quantification
Another possible claim is that CF would try to sue AIH for the damages caused by the
supply of the materials containing this XY256 additive. Well, this particular claim is a direct
breach of contract (Faure & Luth, 2011).It is so because initially, they had received several
complaints regarding the products that had this chemical additive but did not take any action.
Later in the year CF terminates the contract and returns the remaining stock.
AHI may also decide to sue CF because of the immediate cancelation of the contract that
the two parties had. In as much as this incident may be regarded as a breach of contract by CF,
AHI might interpret it much more differently. For instance they may regard it as a common
mistake that was made by both parties in the contract therefore cancelling the contract without
any breach would be an offense (Rose, 2013).
3. Steps I would take to quantify each element of the claim in regard to AHI’s potential
claims against PEL
One of the potential claims that would rise between AHI and PEL is that AHI would sue
PEL for providing them a chemical additive XY256 that produces and unpleasant odor after use
when incorporated in candles. Looking at this claim we see that AHI suffered a tremendous
amount of loss.
Despite the huge amount of loss and damage suffered by AHI, there is an important element
about this claim that we need to look at and this is the fact that when the two parties were getting
into the contract they all had no idea on whether the additive had the effects that triggered the
damages that befell AHI. Well, according to the elements of any contract there has to be an offer
and an offer is required by law that it contains all the terms and details (Schmidt & Silkens,
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Loss Quantification
2015). The terms can be either defined or implied. For this particular incidence, PEL should have
disclosed all the contents and characteristics of the additive XY256 to AHI before getting into an
agreement. This was not the case, however. So in as much that PEL had no idea about this
particular aspect about this chemical additive this element needs to be looked at with greater
understanding and deeper interpretation.
4. An overview on financial or other information that would be of assistance in determining
the amount of loss suffered
From the claims of AIH we see that the company suffered a lot (Ayres, 2012).PEL
involvement in supplying the XY256 chemical additive led to disturbance in the AIH operations.
Therefore from the claims, AIH can provide any financial information regarding the losses
incurred which includes;
Firstly on the claim regarding the damages resulting from use of XY256 chemical additive by
AIH.Here the AIH can provide the income statement which is commonly known as the profit or
loss statement. The list will include the operational expenses incurred by the AIH when ordering
the XY256 chemical additive from the PEL.Through the list then AIH will be in position to give
adequate evidence that will help in assessing the compensation margin. It provides the revenue
and expenses experienced by the AIH when manufacturing products containing the XY256
chemical additive (Ayres, 2012).It provides the evidence on transaction details traced on daily
basis. This is to suggest that the expert used in the claim will have enough evidence on the
supply of XY256 chemical additive by PEL to AIH.
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Loss Quantification
The second financial information to be useful to the AIH is the statement of cash flows. The list
contains all the details on cash AIH Company engaged on selling the candles to the CF.Through
use of the list AIH will be information to give a complete expense incurred in using XY256
chemical additive when manufacturing candles (Pfander, 2011). It contains all transactions
resulting to use of money in buying the XY256 chemical additive from PEL.
Thirdly will be the use of receipts used by the AIH in selling candles to the CF.Receipts gives
enough evidence on losses incurred by the AIH in selling candles manufactured by use of
XY256 chemical additive from PEL.The total expense is calculated and then loss from use of
XY256 chemical additive from PEL is recorded and submitted to the PEL for immediate
compensation.
The other financial information giving losses incurred by AIH will be from the use of balance
sheet. It provides an overview of the available stock details (Schmidt & Silkens, 2015) .The
company gives the total stock of the candles manufactured using XY256 chemical additive from
PEL.The loss is identified and then AIH is compensated appropriately whereby it will be based
on total stock purchased by CF plus the available stock in shelf.
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Loss Quantification
References
Ayres, I., & Ayres, I. (2012). Studies in Contract Law. Foundation Press.
Branson, D. M. (2011). Holding Multinational Corporations Accountable-Achilles' Heels in
Alien Tort Claims Act Litigation. Santa Clara J. Int'l L., 9, 227.
Cain, T. (2014). Third Party Funding of Personal Injury Tort Claims: Keep the Baby and Change
the Bathwater. Chi.-Kent L. Rev., 89, 11.
Faure, M. G., & Luth, H. A. (2011). Behavioural economics in unfair contract terms. Journal of
Consumer Policy, 34(3), 337-358.
Low, C. H., Bordia, P., & Bordia, S. (2016). What do employees want and why? An exploration
of employees’ preferred psychological contract elements across career stages. Human
Relations, 69(7), 1457-1481.
McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press (UK).
Modugu, K. P., & Anyaduba, J. O. (2013). Forensic accounting and financial fraud in Nigeria:
An empirical approach. International Journal of Business and Social Science, 4(7), 281-
289.
Nystén-Haarala, S., Lee, N., & Lehto, J. (2010). Flexibility in contract terms and contracting
processes. International Journal of Managing Projects in Business, 3(3), 462-478.
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Loss Quantification
Pfander, J. E. (2011). Resolving the Qualified Immunity Dilemma: Constitutional Tort Claims
for Nominal Damages. Colum. L. Rev., 111, 1601.
Rose, F. (2013). Terms of the Contract. In Marine Insurance(pp. 259-290). Informa Law from
Routledge.
Schmidt-Kessel, M., & Silkens, E. (2015). Breach of Contract. In European Perspectives on the
Common European Sales Law (pp. 111-135). Springer, Cham.
Singleton, T. W., & Singleton, A. J. (2010). Fraud auditing and forensic accounting (Vol. 11).
John Wiley & Sons.
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