Examine the basis of the claimed loss.
A loss calculation compares an observed financial position with an alternative scenario. The quality of that comparison depends on its factual foundation, its timing and the assumptions used to describe what might otherwise have happened.
Changes in trading may have several explanations. Analysis should identify the financial effect being examined and keep that question separate from matters outside the agreed scope.
Questions this analysis can address
What is the basis of the claimed loss?
Which records support the calculation?
What alternative explanations or scenarios should be tested?
Scope may include
Review of loss calculations
Understand the calculation, period and factual basis of the claimed financial effect.
Financial modelling
Reconcile the inputs with accounts, trading records and supporting material.
Scenario assessment
Construct and test the alternative scenario and its material assumptions.
Supporting documentation
Explain the calculation, alternative explanations and limits of the available evidence.
How the analysis develops
Begin with the claimed mechanism of loss and the period under review. Establish which inputs are supported by records and which depend on assumptions about an alternative scenario.
Relevant costs, changes in trading and other influences need careful treatment. Sensitivity analysis can show which assumptions drive the result and where further information could make a material difference.
Before an engagement
Is a fall in revenue the same as a financial loss?
Revenue is one part of the calculation. Relevant costs, timing, other trading influences and the basis of the alternative scenario may also affect the financial assessment.
How is the scope established?
The initial discussion defines the question, the records available and the intended use of the analysis. Suitability, independence, responsibilities, fees and deliverables are agreed before work begins.
What should I send first?
Begin with a short description of the background, the question and any relevant dates. Arrangements for sharing confidential source records should be agreed separately.