When calculating the lost self-employment earnings for an individual, the date the individual “returned to work” is often treated as the end of their lost earnings claim. However, for many self-employed individuals, they do not return to work full-time after their accidents and may have a loss after they return to work.
Unlike salaried employees, self-employed individuals do not have a set schedule or guaranteed paycheck, which can make their income difficult to project. Their income depends directly on productivity, availability, and consistency. As a result, even if someone is officially back at work, they may still be losing money if they cannot work at the same level as before.
One common situation is reduced work capacity. An individual may physically be at work but can only handle fewer hours, fewer types of tasks, or a smaller amount of work overall. These limits usually lead to lower income and result in a loss of self-employment income. We calculate this loss by taking the difference of what an individual is expected to make and what they are actually making during their partial return to work.
In some cases, people try to restart their business, then have to cut back due to continuing physical problems. Ultimately, these self-employed individuals can still have a loss of earnings despite returning to work. However, once an individual is cleared by their doctor and returns to work full-time, they cannot claim lost self-employment earnings past that date.
When a self-employed individual experiences an interruption to their business due to an accident, calculating their lost self-employment earnings becomes an important part of the claims process. In order to calculate lost self-employment earnings, two documents are frequently relied upon; the personal income tax return and the IRS tax return transcript. Although closely related, they serve different purposes and provide different levels of detail. Understanding their differences is important when determining an individual’s lost self-employment earnings.
A personal income tax return contains the full breakdown of self-employment revenue, expenses, and the resulting net earnings. When several years of returns are reviewed together, they reveal patterns, trends, and seasonality in earnings; which provide a better understanding of what an individual would have earned had the accident not occurred.
In contrast, an IRS tax return transcript is a summary of what the IRS has on file for the taxpayer. Although it mirrors certain line items from the tax return, it does not include the detailed schedules or supporting documents necessary to calculate lost self-employment earnings. Rather than serving as a substitute for the tax return, the transcript functions more as a verification tool.
In practice, the two documents work best together. The tax return provides the information necessary for calculating lost earnings, while the transcript, while not sufficient on its own for performing these calculations, provides confidence that the figures used from the tax return are accurate and can be relied upon.
In this case, we were engaged to analyze the Insured’s claim for lost earnings resulting from an automobile accident that occurred in late 2024. The Insured is a medical doctor specializing in women’s healthcare.
To analyze the Insured’s claim for lost earnings and calculate average daily gross earnings prior to the date of loss, we were provided with their 2022 and 2023 personal and business income tax returns, as well as monthly business bank statements from the beginning of 2024 through the loss period and the Insured’s return to work on a full-time basis. Our review of the 2022 and 2023 business income tax returns indicated that the Insured possesses a 100% ownership interest in a medical practice and reports their income on a cash basis of accounting. The 2022 and 2023 returns reflect marginal growth in gross income; however, the 2024 business bank statements from the beginning of the year through the day prior to the loss reflected a decrease in the average daily gross income relative to 2022 and 2023. Accordingly, the average daily gross earnings were calculated using the 2024 earnings, as they more accurately reflected the practice’s earnings capacity prior to the date of loss.
The Insured’s average daily gross earnings by dividing actual gross earnings reflected in the business back statements from the beginning of the year through the day prior to the loss event by the number of days in that period. Expected gross earnings for the loss period were then calculated by multiplying the average gross earnings by the number of days the Insured reported being unable to work.
In addition to the earnings deposited prior to the date of loss, the statements continued to reflect deposits during the loss period. Given that the practice operates on a cash basis of accounting, the practice continued to operate on a part-time basis during the Insured’s absence. Our analysis further indicated that the actual gross earnings received during the loss period exceeded the calculated expected gross earnings.
Accordingly, we issued a report stating our opinion that the Insured did not suffer a loss of earnings, as actual gross earnings exceeded expected gross earnings during the loss period.
In response to our report, the Insured stated that they did not pay themselves wages during the loss period due to their inability to work. Despite the new information received, we maintained our opinion, as the Insured is the sole owner of the practice and the documentation shows that the practice continued to receive income exceeding the calculated expected gross earnings during the loss period.
When a business suffers a covered loss that interrupts its operations—such as a fire, storm, or other insured peril—business interruption insurance (often called business income insurance) is designed to reimburse the insured for lost income and continuing expenses during the period their operations are suspended. A central issue in preparing and evaluating these claims is how revenue and expenses are recognized, and this is where cash basis vs. accrual basis accounting becomes critically important.
What Are Cash and Accrual Accounting?
Cash basis accounting records revenue when cash is received and expenses when cash is paid out. This method reflects actual cash flows but can give a distorted picture of economic activity because it ignores amounts earned but not yet collected and costs incurred but not yet paid.
Accrual basis accounting records revenue when it is earned and expenses when they are incurred, regardless of the timing of cash flows. It adheres to the matching principle, aligning costs with the associated revenues in the same reporting period, and provides a more accurate picture of a company’s financial performance.
Why Accrual Accounting Matters in Business Interruption Claims
For business interruption claims, the objective is to estimate what a business’s income and expenses would have been “but for” the interruption. Simply tallying cash receipts and payments during the loss period often yields misleading results, because businesses frequently perform services or make sales that are paid weeks or months later. Similarly, expenses may be incurred before they are actually paid.
Further, lost income in business interruption claims needs to be calculated using the accrual basis of accounting rather than the cash basis—so that sales/receipts and expenses/disbursements are matched and reflect the true economic activity of the business. Cash-basis calculations often produce improper and unjust results because they fail to capture receivables and payables associated with the period of loss.
In practical terms, accrual accounting ensures:
Revenue reflects earned income during the period the business was forced to suspend operations, even if the cash was collected later.
Expenses reflect obligations incurred to generate revenue, even if cash payments occur outside the interruption period.
The “but-for” scenario (what revenue would have been) is measured on a consistent basis with how normal operations were conducted historically.
Insurance Policy and Accounting Method
While policy language typically defines the scope of recoverable losses (e.g., net income before taxes plus continuing normal operating expenses), the method of accounting becomes central when quantifying those items. Insurers and courts generally expect lost profits and continuing expenses to be quantified on an accrual basis, because it more closely aligns with economic performance and historical financial reporting.
Carriers sometimes begin with financial statements prepared by the insured, which may be on a cash basis. However, a claimant’s expert can demonstrate that an accrual basis more accurately reflects the business’s damages, and insurers often adjust accordingly.
Common Challenges and Adjustments
Some of the key issues that arise when applying cash vs. accrual accounting in business interruption claims include:
Receivables and payables: Cash statements ignore uncollected revenues and unpaid costs, potentially understating both lost income and continuing expenses.
Saved expenses: During a shutdown, a business may avoid certain variable costs (e.g., cost of goods sold). These saved expenses need to be deducted from lost revenues using accrual figures to avoid double-counting.
Period of restoration: The chosen accounting basis affects how the period of loss is defined and measured; the accrual basis matches activities within that defined period.
Role of Forensic Accountants
Given these complexities, business interruption claims frequently involve forensic accountants who:
Convert cash-basis records to accrual figures.
Reconstruct historical performance on an accrual basis.
Estimate “but-for” revenues and expenses using consistent accounting treatment.
Identify continuing vs. non-continuing costs under policy terms.
Summary
Accrual accounting is generally the appropriate method for analyzing business interruption claims because it aligns revenues and expenses with the periods in which they are earned and incurred. Cash basis accounting, while simpler, can distort the measurement of lost profits and continuing expenses because it fails to recognize receivables and payables connected with the period of loss. Insurers, experts, and courts tend to favor accrual-based measures when quantifying damages, offering a more accurate and equitable basis for settlement.
FAZ Forensics was retained to calculate economic damages in the aeronautical industry arising from an alleged breach of warranty by an aircraft manufacturer. The damages stemmed from the client’s aircraft being out of service for approximately ten months—significantly longer than initially represented—resulting in lost charter revenue and other consequential costs.
Pertinent Facts
According to the plaintiff, the aircraft was operated in accordance with applicable maintenance manuals, and all inspections and maintenance were performed exclusively by the manufacturer. During a routine 12-year inspection, the manufacturer proposed remediation work related to excessive structural deterioration and component wear.
The plaintiff alleged that the manufacturer’s initial estimates regarding repair costs and return-to-service timelines constituted material misrepresentations. What was initially represented as a four-month repair period ultimately extended to approximately ten months. The plaintiff further alleged that the manufacturer should have identified the need for additional repairs earlier and completed the work during a prior maintenance cycle, thereby avoiding the prolonged delay.
FAZ Work Performed
In performing its analysis, FAZ Forensics relied on the expert report of an aviation maintenance professional retained by the plaintiff. That expert concluded that the manufacturer failed to meet the reasonably expected standard of care of a competent and experienced aircraft maintenance, repair, and operations provider.
Forensic accountants routinely rely on other technical experts when matters extend beyond accounting, finance, or economic analysis and require specialized expertise. Such reliance is appropriate where causation, technical compliance, or operational performance must be established before economic damages can be quantified. This approach is consistent with professional standards, preserves appropriate expert boundaries, and supports the reliability and admissibility of the resulting financial analysis.
Other Technical Expert Report
The technical expert concluded that the manufacturer failed to meet the applicable standard of care in the planning, execution, and management of the aircraft inspection and repair process. The report identified multiple deficiencies, including inadequate pre-inspection planning, proposal deficiencies, workforce and project management failures, and substandard corrosion management practices. According to the expert, these failures were the proximate cause of the extended delays and increased costs incurred by the plaintiff.
Damages Analysis
FAZ’s damages analysis included an evaluation of variable operating costs, such as fuel handling fees, landing fees, overflight and landing permits, aircraft parking charges, and other miscellaneous expenses. These costs were analyzed to determine which expenses were variable in nature and directly tied to aircraft utilization. A notable aspect of the analysis involved aircraft engine maintenance costs. While typically classified separately from direct operating expenses, engine maintenance represents a significant operating cost. In this matter, the engine maintenance contract was structured on a fixed rate per flight hour, making it a predictable and usage-based expense. This structure aligns the interests of the aircraft owner and the original equipment manufacturer by incentivizing reliable engine performance.
FAZ also analyzed consequential costs resulting directly from the aircraft’s unavailability. These included expenses for alternate aircraft charter, commercial air travel, lodging, ground transportation, and other travel-related costs incurred as a direct substitute for the unavailable aircraft.
Lost profits claims are among the most complex—and often contentious—components of economic damages litigation. Attorneys rely heavily on forensic accountants to quantify damages that are defensible, grounded in sound methodology, and capable of withstanding rigorous scrutiny from opposing experts and the court. However, the path from alleged harm to an evidence-based damages calculation is far from straightforward. Each assignment carries its own mix of factual uncertainty, data limitations, and methodological pitfalls.
Below are some of the most significant challenges forensic accountants face when assessing lost profits in litigation, along with best practices to help ensure reliable and credible results.
1. Establishing Causation vs. Correlation
One of the most fundamental hurdles in lost profits cases is distinguishing the impact of the alleged wrongful act from other factors that may have influenced financial performance. Courts expect that damages experts demonstrate a clear, causal link between the defendant’s actions and the plaintiff’s lost profits.
Key Challenges
External market forces: Economic downturns, supply chain issues, regulatory changes, or industry-wide shifts may independently affect sales and profitability.
Company-specific variables: Management decisions, pricing changes, internal inefficiencies, or unrelated operational disruptions may confound the analysis.
Best Practices
Conduct a but-for analysis that isolates the impact of the alleged harmful event.
Evaluate industry benchmarks, competitor performance, and macroeconomic data to contextualize the plaintiff’s historical performance.
2. Reliance on Imperfect or Incomplete Data
A common challenge for forensic accountants is the quality, availability, and reliability of the data provided. Lost profits calculations depend heavily on accurate historical financials, operating records, sales data, and industry metrics. In some cases, these records are incomplete or inaccurate—or simply never existed.
Key Challenges
Missing historical sales or cost data.
Poorly maintained accounting systems.
Lack of documentation supporting key assumptions.
Overly optimistic or speculative projections prepared by management.
Best Practices
Perform data reasonableness checks to validate the reliability of information.
Leverage third-party sources (industry databases, government statistics, market reports) to corroborate internal data.
Clearly disclose data limitations and explain how they impact the certainty of your conclusions.
3. Determining the Appropriate “But-For” Revenue Stream
Lost profits analyses typically begin with estimating the revenue the business would have earned absent the wrongful act. This requires developing a but-for scenario that reflects realistic, supportable expectations—without drifting into conjecture.
Key Challenges
Volatile revenue streams or cyclical business models.
New or rapidly growing companies with limited operating history.
Disputes involving start-ups, early-stage ventures, or product launches.
Economically unsustainable past trends (e.g., unusually high growth periods).
Best Practices
Use multiple approaches (historical trends, customer attrition, market share analysis) to triangulate a reliable estimate.
Avoid simple extrapolations when historical trends are not representative of future expectations.
Incorporate capacity constraints, pricing changes, and market conditions into the but-for scenario.
4. Capturing Incremental Costs and Avoiding Overstatement of Damages
Lost profits calculations require not only estimating lost revenue but also adjusting for costs that would have been incurred to generate that revenue. Misclassifying fixed versus variable costs is a frequent source of error and dispute.
Key Challenges
Incorrectly treating fixed costs as variable, or vice versa.
Difficulty determining the incremental cost structure of multi-product companies.
Overlooking avoided costs or alternative revenue streams.
Best Practices
Perform a detailed cost structure analysis to determine true incremental profitability.
Consider contribution margin rather than gross profit when possible.
Review cost accounting records, budgets, and interviews with management to validate cost behavior.
5. Forecasting the Duration of the Loss Period
The length of the loss period can significantly influence the damages amount. Determining a reasonable duration often requires careful judgment supported by facts and evidence.
Key Challenges
Disputes about how quickly the business could mitigate damages.
Identifying when operations or market conditions returned to normal.
Evaluating long-term damage claims versus short-term disruptions.
Best Practices
Support the loss period with contemporaneous documentation (emails, production logs, customer communications).
Analyze customer churn, re-acquisition timelines, and sales cycles.
In cases of permanent loss of business opportunity, carefully evaluate longevity, market share, and competitive factors.
Conclusion
Lost profits analyses require a disciplined balance of financial expertise, investigative rigor, and professional skepticism. Each case presents its own mix of uncertainties, analytical challenges, and factual disputes. Forensic accountants play a critical role in guiding the trier of fact through these complexities by presenting clear, well-supported opinions rooted in reliable data and sound economic principles.
A carefully executed lost profits analysis not only withstands scrutiny—it strengthens the overall credibility of the case.
Construction projects often start with optimism but can quickly unravel into disputes. Cost overruns, delays, and change orders frequently trigger financial conflict, and the construction contract becomes the main battleground. Moreover, the sale or purchase of these contracts can also be prone to such financial disputes. In these situations, attorneys, owners, and contractors turn to us, the forensic accountants; or at least we hope they do, because we can help. By analyzing financial data, quantifying damages, and linking costs to contract terms, we provide the clarity needed to resolve disputes efficiently.
Common Sources of Disputes
Disagreements in construction often arise from:
Change Orders: Disputed costs or poorly documented variations in the reported work in progress (WIP).
Cost Overruns: Rising labor and material expenses exceeding budget. This can include overruns due to macroeconomic factors such as supply chain turbulence, tariffs, or labor market changes.
Payment Conflicts: Unpaid invoices, retainage, or lien filings.
Joint Venture Disputes: Conflicts over cost allocations and profit-sharing.
Asset Purchase Agreement (APA) Disputes: Conflicts between sellers and buyers of construction contracts over profit-sharing conditions and the underlying profit margin variations, as well as claims over outstanding receivables and payables.
Each dispute blends contract interpretation with financial complexity which makes independent accounting expertise necessary.
The Forensic Accountant’s Role in Disputes
We bring order and clarity to messy and complex financial records. With experience in residential and non-residential building construction, as well as heavy and civil engineering construction, our role often includes:
Quantifying Damages: Calculating extended overhead, lost profits, or extra costs from scope changes.
Spotting Red Flags: Identifying inflated or duplicate charges.
Supporting Legal Teams: Preparing defensible analyses and, when needed, serving as expert witnesses.
The result is a clear financial story that supports stronger legal arguments and more reliable outcomes.
Adding Value in Litigation and Arbitration
We add value by:
Delivering independent, fact-based analysis.
Helping attorneys build or challenge claims with reliable financial insight.
Translating complex data into clear exhibits and reports for courts, arbitrators, and mediators.
Providing objective numbers that can facilitate settlements and reduce litigation costs.
Conclusion
When construction projects go wrong, financial disputes can escalate quickly. We help cut through the confusion by reconstructing costs, reviewing supporting documentation, quantifying damages, and presenting objective analysis.
When a property owner experiences a loss — fire, water damage, hurricane, or another covered event — the first instinct is often to hand over the rent roll to the carrier or adjuster as the basis for a Loss of Rents claim. But rent rolls tell only part of the story. A rent roll shows who is supposed to pay rent; a Loss of Rents calculation requires proof of what rent was actually lost. Those two things are not the same.
Rent rolls are forward-looking. They list tenants, lease terms, and the rent the landlord expects to collect. However, they do not reveal:
Whether tenants were current on payments prior to the loss,
Whether rent stopped due to the loss or because the tenant was already delinquent, or
Whether vacancies were caused by — and covered by — the incident.
Relying solely on rent rolls can inflate a claim and create unnecessary disputes and delays.
Understanding tenant movement and lease behavior is critical. Some tenants may move out because the unit was offline due to the loss; others may leave simply to avoid the disruption, or they may be relocated to another unit. Some tenants receive concessions or discounted rent instead of moving out. Each scenario affects the loss value differently.
Profit and loss statements also play a key role. “Other income” categories — such as laundry, parking, or pet fees — often decrease alongside rent when tenants move out, and those reductions need to be captured in the loss.
Lease cycles must also be considered. In college markets, for example, leasing may only occur once a year on September 1. If damage prevents leasing during that period, the landlord may lose an entire lease cycle even if the property is repaired by spring. Missing the lease inception date can create significant loss that rent rolls alone won’t reveal.
To build a defensible Loss of Rents claim, additional documentation is needed:
Tenant ledgers show actual payment history and whether the tenant was current.
Lease agreements confirm contracted rent and intended move-out dates.
Vacancy records identify whether tenants could have been relocated to other units (for example, if the building had sufficient capacity).
Communication records support whether concessions or abatements were tied to the loss.
Loss of Rents calculations are based on actual economic loss — not projected income. Carriers and opposing experts will focus on whether the loss event caused the vacancy, and whether rent was collectible before the loss occurred. Rent rolls are a necessary starting point, but without documentation that verifies actual lost cash flow, they are not evidence.
A defensible Loss of Rents claim ties lease terms → tenant payment history → actual lost income. When that narrative is supported with proper documentation, claims are resolved faster and with fewer disputes.
In today’s economic climate, the majority of businesses are subject to a varying degree of seasonality. Whether you own a landscaping business, or manage a local coffee shop, your business is likely to be impacted by seasonality. Seasonality refers to recurring fluctuations in either supply or demand that occur throughout the year. These ebbs and flows in business can be the result of social, cultural, and environmental factors.
Seasonality is most evident in businesses through changes in the weather. For example, occupations like landscapers and delivery drivers both experience seasonality but in a different capacity. A landscaper typically conducts the majority of their business during the spring, summer and fall, when conditions are favorable for working outdoors. Whereas, the winter provides delivery drivers with an opportunity to make more money, as many customers prefer to stay home and order their meals to be delivered.
In addition to the weather, social and cultural factors play a significant role in seasonality and a business’s income. For example, cultural traditions such as holidays or life events like graduation or vacation create a positive impact on travel, lodging, and tourism industries. Similarly, social events like live entertainment or sporting events produce a seasonal boost in the income for many businesses.
Now that some of the factors that can impact seasonality have been identified, what are some of the tools or financial instruments that can be used to identify seasonal trends?
Profit and Loss (P&L) Statements: monthly/quarterly P&Ls are an effective tool to identify and track seasonality. Analyzing a business’s P&Ls provides business owners with valuable insight regarding changes in earnings, costs of goods sold and operating expenses. Furthermore, when observed over an extended period, P&Ls can identify patterns in consistency and opportunities for growth.
Balance Sheets: a balance sheet provides a snapshot of a business’s financial position at a certain point in time. In the context of seasonality, it can be useful for identifying fluctuations in inventory during peaks seasons, as well as detecting spikes in accounts receivable that arise from increased consumption.
Cash Flow Statements: business owners can use the Cash Flow Statement to analyze their operating, investing, and financing activity. Unlike the P&L, which recognizes revenue and expenses at the time they are incurred, the Cash Flow Statement reflects actual receipt and disbursement of cash through business activity. By monitoring cash collections, disbursements, borrowing, and repayment, owners can identify seasonal patterns that recur year after year.
When analyzing the data on financial statements, it is important to distinguish between recurring seasonal patterns or one-time anomalies. A recent example of such an anomaly was the COVID-19 pandemic, during which many businesses experienced either a surge or decline in activities. For medical professionals such as doctors and dentists, increased time at home prompted many individuals to schedule their overdue appointments, despite healthcare providers potentially operating at a limited capacity. In contrast, service industries such as bars and restaurants were significantly impacted by restrictions imposed and reduced consumer activity. Since the conclusion of the pandemic, many surviving businesses have experienced a return to normalcy, resulting in more stable economic conditions.
In conclusion, it is essential for business owners to leverage the financial tools available in order to recognize seasonality. Beyond a measure of compliance, financial statements can serve as a strategic tool to help businesses manage cyclical performance and develop informed predictions regarding future conditions.
There has been renewed talk about whether US publicly traded companies should be allowed to report earnings every six months rather than on a quarterly basis. In earlier days, beginning in 1934, the Securities and Exchange Commission (“SEC”) had the power to require periodic reports from public companies but did not specify the reporting frequency. Beginning in 1955, the SEC began requiring semi-annual reporting, which meant companies filed reports twice a year, for example as of June 30 and December 31. In 1970, the SEC established a mandatory annual and quarterly filing requirement.
There may be some good reasons to go back to preparing semi-annual filings to get away from what at times is sometimes viewed as a short-term results-oriented market and management focus, however there are a lot of bad reasons to revert back to the stone age. Society has the people and technology in place to get it done and the technology is only going to get better.
There is no one answer as to whether quarterly or half-yearly reporting is better; each method has distinct advantages and disadvantages depending on the perspective of the market participant – individual, investor, company management and regulator. The core issue in the debate comes down to balancing transparency and investor interest with both the positive and negative attributes of the current system.
Let’s look for inspiration from American football played in four quarters instead of two halves. For historical reasons, this addresses player fatigue and fairness related to field conditions. This article will discuss some of the decision-making factors in the debate and how some of the positive rules of football impact our American financial reporting system.
The Quarter System in American Football
The quarter system in American football was officially adopted by college football’s governing body in 1910 because of three areas of concern:
1. Weather and Wind Directionand its impact especially on the passing and kicking games. By switching sides of the field after every quarter, both teams have two quarters of play in the same direction, preventing one side from getting and having a sustained weather advantage.
2.Field Conditions– just like the weather, field conditions have a great impact on the game. The system allows each team to play both ends of the field twice so no one team has a constant advantage due to the turf conditions. Notwithstanding today’s use of artificial turf this analogy may not fully apply, however, there can be different bumps and bruises and dips on a turf field.
For any New York Jet fan conspirators out there, you may remember “Tarp-Gate,” a 1983 AFC championship game between the New York Jets and Miami Dolphins. Heavy rains downed the Jets. There have been accusations that Don Shula purposely left the tarp off the field to slow the Jets running game. This has been refuted by accounts that the Orange Bowl did not have a tarp but instead a field pumping system, that apparently was not plugged in. As I understand it, there is still no NFL rule on the requirement for a team to have a tarp.
3. Player Rest– football is physically and mentally demanding, a high-impact collision sport. Breaks between quarters and the longer halftime are crucial for players’ safety and performance.
The quarters continue to influence coaching strategy, player management, including how teams manage the game clock, make adjustments, and call plays. In essence, the quarter system in American football is designed to balance intense, physically demanding play with strategic opportunities for rest, recovery, and tactical adjustments, while also promoting fairness in gameplay. Does this sound familiar to anyone?
Is Semi-Annual Reporting better than Quarterly Financial Reporting?
Moving from quarterly to semi-annual reporting could increase the risk of unintended communication or miscommunication of information and increase market speculation and volatility. If that were to happen, companies would need to become even more vigilant about how and when they communicate material developments. If you were to speculate that companies are window-dressing the quarters, what is going to be different at the half?
Quarterly reporting provides a number of positives for investors – greater transparency and trust because more frequent updates give investors a clearer more up-to-date picture of a company’s performance. This exchange of information builds confidence between the company and investor. Some traders may prefer a quarterly report because the earnings seasons create opportunities and threats they can focus on. The speed of communications today is blinding, and stakeholders can address and identify problems more quickly than in the past: more reason for companies to stay ahead of the others.
With all the benefits to investors there are a number of consequences for companies and management which at times focuses them on a myopic view of things in order to meet quarterly earnings targets and expectations. There is a significant administrative burden for companies preparing quarterly reports, which is a time-consuming and expensive process. However, generally no one is using green ledger paper, no one write systems anymore and companies regularly close their books on a monthly basis for timely financial information for management.
Half-year reporting may reduce the pressure on a company to deliver a quarterly result and allow management to focus on long-term strategic initiatives. Less frequent reporting will reduce costs, and management can avoid making brash decisions as a result of quarterly pressures. However, there is going to be a six-month myopic perspective as well, and as I understand it from an accounting perspective, everything less than a year is not considered long-term. A six-month reporting period is myopic as well!
The 2002 Sarbanes-Oxley Act was a requirement to restore investor confidence and protect the public by ensuring accurate financial reporting and preventing corporate fraud. It was passed in response to scandals like Enron and WorldCom. Let us not forget all that messy stuff. The act mandates stricter financial controls, personal accountability for CEOs and CFOs independent audits and transparent reporting to enhance corporate integrity and trust in financial markets. While most European Union countries use a half-year reporting system it does not mean Americans should be driving on the left side of the road or using the metric system or playing American football in halves.
Conclusion
I think that most people would agree that the better option depends on the stakeholders’ priorities and for those investors, traders and regulators who want a lot of transparency and frequent updates, quarterly reporting appears to be the answer. For company management and those investors focused on long-term value maybe half-year reporting is better.
For me, the quarterly system is best because it provides greater transparency and aligns with the 2002 Sarbanes-Oxley Act requirements. While there have been some criticisms of the quarterly report because of the increased workload, reality needs to be addressed; companies are regularly closing their books on a monthly basis in a detailed fashion. Yes, the quarter close is a time-consuming exercise and exercise is good, and no one should underestimate the time well spent. If it’s not broken, don’t fix it!
Another solution could consider a compromise which would be close to the middle: a tri-annual 1/3 financial reporting period. Sounds like hockey to me!
FAZ was engaged to evaluate the lost earnings portion of an individual’s no-fault claim under New York State law. The Insured, an owner-operator of a tree removal and landscaping business, was involved in an automobile accident in early 2025. As a result of the injuries sustained, the Insured was unable to work for an extended period, prompting the need for an analysis of lost earnings.
Initial Documentation and Requests
At the onset, FAZ received the Insured’s 2023 personal income tax return and 2024 sales reports. Given that the accident occurred in 2025, this documentation alone was insufficient to provide a reliable analysis. Accordingly, we requested additional records to verify the Insured’s 2024 reported income.
To verify the 2024 sales reports, FAZ requested the Insured’s 2024 personal income tax return. When evaluating self-prepared documents such as sales reports, invoices, or profit and loss statements, our standard practice is to corroborate them with independent documentation, such as tax returns, bank statements, or copies of customer payments. In response, the Insured provided their 2024 tax return along with copies of checks received from customers during 2024. These materials enabled us to confirm the accuracy of the reported sales activity.
Consideration of Discontinued Expenses
A critical component of no-fault lost earnings analysis is the treatment of what we refer to as “discontinued expenses.” These are expenses the Insured would reasonably not incur while unable to work. For example, vehicle-related costs such as fuel, repairs, and maintenance are presumed unnecessary if the Insured is not operating their business due to injury.
FAZ evaluates these expenses as a percentage of reported gross earnings. The total percentage of discontinued expenses is then deducted from the estimated loss, thereby reflecting the net financial impact on the Insured.
In this case, discontinued expenses included:
Car and truck costs
Fuel
Supplies
Deductible meals
Together, these expenses accounted for approximately 75% of the Insured’s reported gross earnings. As a result, the estimated loss was reduced by this percentage.
Key Findings and Outcome
Although the deduction of such a significant percentage may appear unfavorable to the Insured, it is FAZ’s position that these reductions are justified. The Insured is presumed to benefit from the elimination of these expenses during their period of inactivity. This principle often confuses the Insured; however, from a financial perspective, if such expenses are reported for tax purposes, they must also be considered when calculating a fair measure of lost earnings.
Ultimately, FAZ provided the insurance carrier with a substantiated estimate of the Insured’s loss, inclusive of a 75% deduction for discontinued expenses.
Conclusion
This case illustrates FAZ’s consistent methodology in evaluating no-fault claims. By relying on verified documentation and accounting for discontinued expenses, FAZ ensures that loss estimates are both accurate and equitable. We continue to apply this process across all no-fault evaluations, maintaining consistency, transparency, and defensibility in our findings.
In this case, FAZ was engaged by an insurance company to perform an analysis of the Insured’s claim for lost self-employment earnings. The claim was submitted after an automobile accident in October 2024, resulting in the Insured’s inability to continue working. Prior to the accident, the Insured was employed as an Uber delivery driver.
To begin, FAZ received documents and information provided by the Insured to support their claim for lost earnings. These materials included a copy of the Insured’s 2022 personal income tax returns, as well as various weekly Uber earnings statements during the period from January through October 2024. After reviewing the documents, FAZ prepared detailed correspondence, including a list of additional documents and information necessary to further evaluate the claim. Specifically, FAZ requested a copy of the Insured’s 2023 personal income tax return, along with complete monthly Uber Tax Summary reports, to assess the Insured’s gross earnings history during both pre-loss and post-loss periods.
In response to our correspondence, the Insured provided a copy of their 2023 personal income tax return and monthly Uber Tax Summary reports from January through October 2024. Upon reviewing the 2024 Uber reports, FAZ identified numerous discrepancies concerning the formatting of the reports, number or trips completed, and calculations of gross earnings, operating expenses, and net income. Furthermore, in comparison to the earnings reported in 2022 and 2023, the aggregated monthly earnings from January through October 2024 reflected a material increase that substantially exceed the projected earnings for 2024. If not properly verified, reliance on this data could result in the calculation of the Insured’s expected gross earnings to be inflated.
To ensure the accuracy of the documents, FAZ requested clarification concerning the identified discrepancies. Specifically, clarification was requested regarding the material increase in earnings beginning in January 2024, as well as why gross earnings less operating expenses do not reconcile to the reported net income on multiple reports throughout 2024. The Insured explained the documents had been downloaded directly from their Uber account and provided to FAZ without alterations. Furthermore, any error or miscalculation present were attributable to a technical error within Uber’s reporting system. To resolve the identified discrepancies, the Insured contacted Uber’s support team and indicated that they would re-download the reports and provide them to FAZ.
Upon receipt of the updated reports, FAZ observed the majority of identified issues remained unresolved. When requested to provide further clarification, the Insured was unable to account for the ongoing discrepancies identified in the reporting.
As a result, FAZ issued a forensic service report detailing the numerous discrepancies in Uber reporting and communicated these findings to the insurance company. Furthermore, the report concluded that, given the unreliability of the monthly Uber reports provided, the Insured had not adequately substantiated their claim for lost self-employment earnings.
FAZ Forensics is rated 4.95 out of 5.0 stars based on 21 review(s).
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FAZ Forensics did a full review and evaluation of my business and I was very happy with the level of detail and expertise.
- Chris Schmidt
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Christian has, along with his good nature and thoughtful regard, been exceedingly helpful with sorting out the complexities of our case.
We could not be more pleased with our exchange.
Thomas and Hema Easley
- Thomas Easley
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Christian was patient and easy to understand. clear, concise and thorough. he spoke “plain” English and was respectful. he did not “rush” and he responded to every question i had, in a timely manner. no matter how “dumb” it may have seemed. for example, i received some paperwork by mail and i did not understand it. i emailed him about it and he cleared it up that day. thats great customer service!
- Joong Park
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Really good, very knowledgeable and communicated with us every step of the way.
- Haartz Corporation/Tom Daigneault
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FAZ has a great team doing terrific work for our clients.
- Jim Towne
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Exceptional work produced.
- Matt Smith
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Thanks!
- Arrow Bank
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FAZ was very professional, knowledgeable and very fair priced. The work performed was prompt, accurate and reliable. I would absolutely hire them again if in need for additional accounting work.
- Arrow Financial Corporation
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Excellent to work with. Professional and personable.
- Cambridge Central School District
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Awesome team! They were a pleasure to work with. I would definitely recommend.
- Cambridge Central School District
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FAZ was extremely thorough and professional in doing our business valuation. We are very pleased with the results
- Anne Choppy
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Steve and GeNet were great at the valuation we needed. Very satisfied.
Thanks,Vince and Anne
- Vincent M. Choppy
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Perfect
- Zalazar anelardo
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Gen'et and Paul were extremely responsive to our needs. They listened and responded to any concerns that we had. I would highly recommend them for any forensic engagement needs.
- Jennifer Mulligan
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Thank-you for asking. Our experience was excellent. The people at FAZ showed a depth of knowledge and experience that was very helpful with the undertaking before us. Well done.
- Guy Tombs
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The CPAs and staff at FAZ are truly amazing. They explain their process very well and always answered my questions right away. I highly recommend them for all your forensic accounting and evaluation services.
- Ashley Hart
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Excellent and responsible.
- Peter Lee
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Steve Ferraro did an excellent job and worked tirelessly as our expert forensic accountant witness. Based on Steve's hard work, the jury awarded every penny that Steve showed our client to be entitled to and completely rejected the conclusions of the opposing side's expert.
- Dave Paliotti
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Great firm!
- John Harwick
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The people at FAZ are amazing. They are true professionals. The staff is knowledgeable & kind. You feel like you matter. Anytime I have questions they take the time to go through everything in detail so I completely understand everything. I would definitely recommend FAZ.
