THE RANGE OF ACCOUNTING
ISSUES involved in court
disputes today covers so many aspects of
finance that CPAs of all types may be
qualified to offer expert witness services
in one or more areas. |
CPA LITIGATION SERVICES
ENCOMPASS several roles:
expert witness (who renders
an opinion before a trier of fact);
consultant (a nontestifying
adviser); and other (a trier of
fact, special master, court-appointed
expert, referee, arbitrator or
mediator). CPAs who serve in those
capacities need to understand and adhere
to applicable standards, rules and laws.
BEING ABLE TO DEAL WITH
THE UNEXPECTED is a key part
of performing well as an expert witness.
Opposing counsel usually will try to
build a case around its own experts
rather than attack a witness who is
poised and objective.
FEES VARY WIDELY
DEPENDING ON the complexity
and needs of the client’s case. Before
accepting an assignment a CPA should get
a signed engagement letter that outlines
the scope of the job. Its fee schedule
should allow for the possibility that
the workload may be altered as a result
of a change of direction the case may
take or that a case could settle out of
ATTORNEYS WILL ASK AN
EXPERT WITNESS t o disclose
any information of a personal nature
that could diminish their effectiveness.
Forewarn them about anything that has
the potential to damage the case.
FOR ACCOUNTANTS WILLING
TO ENDURE having their
professional life scrutinized in the
public arena of a courtroom, service as
an expert witness or litigation
consultant is both a challenge and a
source of great satisfaction.
CRUMBLEY, CPA, is the editor of the
Journal of Forensic Accounting,
KPMG Endowed Professor at Louisiana
State University, Baton Rouge, and a
contributor to the U.S. Master
Auditing Guide. His e-mail address
firstname.lastname@example.org . KEITH A. RUSSELL,
CMA, PhD, is a tenured professor and dean
of the school of business &
administration at St. Mary’s University,
San Antonio, Texas. He is a contributor to
many professional publications and is
active in the Institute of Management
Accountants. His e-mail address is email@example.com
eing able to deal with the
unexpected is a key part of performing well as an
expert witness and a challenge that some CPAs find
exhilarating. Increasingly, forensic accountants
are being called as expert witnesses to help sort
out the labyrinthine financial aspects of
litigation involving complex issues and large sums
of money. In open court these advisers submit to
scrutiny from a judge, the jury, attorneys, court
personnel and trial spectators. CPAs who keep
their cool and convey concise, cogent
information—whether in depositions or under an
opposing attorney’s attempts to discredit their
testimonies—can have a pivotal impact on a
conflict’s resolution as well as the satisfaction
of helping a client win (see “
Basic Legal Concepts ”). Here are some
suggestions on how to increase your positive
impact on behalf of your client.
PREPAREDNESS IS THE KEY
Juries, judges and arbitration
panels charged with resolving disputes with
financial aspects often know little about
financial statement analyses, audits, tax,
budgeting or malpractice calculation of lost
profits and damages. To help triers of fact
understand the impact of different types of
financial transactions or attach a measurable
value to a plaintiff’s injury CPAs often are
called on to serve as expert witnesses. If you
want to develop a niche in such litigation
services or just learn to feel more comfortable on
the stand, here are some tips to get you started.
Come to Order
“Most people didn’t realize that
were often won before
stepped foot inside a
Last Man Standing by David
Simon & Schuster,
Review your qualifications.
Do you have the academic training,
career prominence (published articles),
professional certifications, requisite knowledge
and experience in a specific area to be a
successful expert witness? Enumerate your
competencies (see “
Give Your Skills a CAT Scan, ” JofA
, Jul.04, page 34). People skills are
particularly important in interactions with all
parties to a trial.
Get your credentials in order.
Federal rule of civil procedure
26(a)(2) mandates experts disclose their identity,
the issues their opinions will address, their
professional qualifications (including what
they’ve published in the past 10 years and all
cases in which they provided expert testimony in
the previous four years) and who is paying them.
There are many resources for expert witness
training (see Resources
Be realistic about whether you’re the
right expert for the job. A
self-serving view of your abilities won’t help you
deal with the opposing attorney if you are not
truly well-versed in the area in which you give
testimony (see “
”). If you’re offered an engagement in an area
that’s not your strong suit, recommend an expert
whose qualifications are a better match (see exhibit ).
A lthough expert
witnesses aren’t required to testify from
personal knowledge, they must be qualified
to give opinions, the Supreme Court has
said. As a result there has been a series
of precedent-setting Supreme Court cases
involving expert witnessing, starting with
Daubert v. Merrill Dow
Pharmaceuticals, Inc. Because of
Daubert , a court must now, in
substance, make a preliminary finding
regarding whether the reasoning and
methodology employed by an expert is
scientifically valid and whether it can be
applied to the facts of the particular
dispute (see “ Expert
Testimony After Daubert…, ” JofA
, Jul.01, page 59).
Tire Co. v. Carmichael
decision extended the Daubert
concept to all expert testimony,
regardless of the subject matter. CPAs
who testify as expert witnesses must
describe what CPA certification requires
and why they should be considered
experts in a particular case. Experts
must state what methodology they’ve
used, whether it is reliable and why.
Experts should put the evidence in the
trial record in every case.
Daubert has had substantive
impact on the admissibility of expert
testimony; there now is heightened
scrutiny of both the methods used and
the factual support for the conclusions
expert witnesses present. A motion
in limine (a pretrial request
to the court to prevent an opposing
party from introducing inadmissible
evidence) under federal rule of evidence
104 may be used to exclude an expert
witness’s report and/or testimony.
The five factors that determine
Daubert acceptability for
expert testimony are
Whether the theory or
technique used by the accounting expert
can be or has been tested.
Whether the theory or
technique has been subjected to peer
review and publication.
The known or potential rate
of error of the method used.
The degree to which the
method or conclusion has been accepted
within the relevant community.
Whether the theory existed
before litigation began.
in general, will not exclude testimony
on the basis of one factor alone.
Prepare in depth. Once
you’ve been retained, do your homework. Be
professional, complete and creative. Learn all
pertinent aspects of the dispute as well as
protocol and procedures for the witness stand.
Analyze the background of the issues and review
related depositions, materials attorneys furnish
and any additional materials they deem relevant.
Work closely with counsel to review the rules of
the particular jurisdiction in which the case is
pending. Both statute law and case law may be
relevant. Certain states may require a CPA who
isn’t licensed with that state to register prior
to giving testimony.
Note: Based upon the successful
deposition of an expert, cases often settle
without going to court.
Don’t let your attorney mold your
conclusions. If you reach a
point where you are uncomfortable or cannot
testify to something the attorney wishes you to,
say so—vigorously if necessary. Suggest another
approach that can be independently supported.
Talk to yourself. Because
the judge and jury likely do not have working
knowledge of accounting technicalities, practice
how you will express information in a clear and
simple way. Tape-record your explanation of
important points, then play it back. If you were a
layman, would you understand what you just heard?
If not, edit your approach; using the same section
of tape, rerecord until your explanation sounds
comfortable and clear. If possible, role-play with
a colleague who takes the part of an attorney
asking you likely questions.
the decision tree below to determine which
professional standards apply in a
litigation services engagement. (Acronyms
in boxes stand for statements on standards
for consulting services, accounting and
review services, attestation engagements
and auditing standards.) |
and explanation of litigation services,
refer to Interpretation no. 3,
“Applicability of Attestation Standards
to Litigation Services,” of Statement on
Standards for Attestation Engagements
(SSAE) no. 10, Attestation
Standards: Revision and Recodification
(AICPA, Professional Standards,
vol. 1, AT secs. 9101.34–.39).
THE EXPERT’S DAY IN COURT
Above all be careful,
precise and truthful in your deposition and on the
stand. Opposing counsel will pounce on extremely
small mistakes or omissions to embarrass you or
get your testimony excluded (see “
As a Matter of Fact ”). Your job is to be an
advocate for a position and to provide concise,
Use visual aids. Simplify
the presentation of sophisticated accounting
matters by using PowerPoint charts, graphs or
related illustrations (see “
An Expert Witness Can Make or Break a Case,
” JofA , Aug.01, page 37). Written
notes may help you focus, but they give opposing
counsel something to attack.
Don’t answer an ambiguous question.
If you are unable to respond to a
question, say so and request clarification.
Maintain your composure.
Opposing counsel will attempt to
discredit you and destroy your self-confidence if
your testimony could have a detrimental impact on
their client’s case. In fact, the better the job
you do as an expert witness, the more intense
their attack on you will be. There’s no cause for
concern. Cross-examination by opposing counsel is
an inherent part of the legal process. If
confrontation exceeds the bounds of accepted
norms, your attorney or the judge will intercede.
Breathe deeply whenever you feel yourself losing
Be patient. There will be
many delays, motions, recesses and attorney
sidebars that can cause frustration. Don’t let
them affect you. On the witness stand, you must
maintain a calm, cool demeanor in what will
sometimes appear to be a chaotic, turbulent scene.
Your client, the judge and the jury will expect
you to be professional at all times.
Maintain a sense of humor.
Well-timed humor is fine in the
right circumstances and helps an expert witness
appear natural and spontaneous. However, make sure
a joke is not cruel, and don’t force one. That’s
worse than no levity at all.
Know your limitations. Do
not try to bluff when you don’t know an answer.
Effective expert witnesses claim expertise only in
those areas where they’re justified in doing so.
Remember, the other side has access to its own
accounting experts who can validate or refute your
testimony. Usually opposing counsel will try to
build a case around its own experts rather than
attack a witness who is poised and objective.
Don’t become argumentative or defensive.
Avoid displays of negative
behavior—even though it may be hard not to show
“sore loser” feelings if opposing counsel appears
to have gained the upper hand during the ups and
downs of testimony. Don’t worry; your attorney has
the option of “redirect” testimony to reexamine
certain points if necessary. If you concentrate on
your area of expertise and at all times exhibit a
composed demeanor, opposing counsel’s attempts to
damage you and your testimony likely will work
against their position.
Do not forget who is deciding the case.
Direct your replies to the judge and
jury. You are speaking to people who will base
their understanding and acceptance of your
testimony on your professionalism. If the
testimony’s full positive benefit is to have an
impact on the court’s decisions, they must trust
In a jury trial in particular, much
of what you say will be accepted or rejected
according to whether you speak clearly, project
self-confidence and communicate your strong sense
of ethics, positive attitude and enthusiasm. These
factors may have a greater influence on the
outcome than the actual testimony.
literature available to
Institute members includes the
AICPA Code of Professional
Conduct and the following:
on Standards for Consulting
Services no. 1, Consulting
Services: Definitions and
publication (# 055015JA).
Dispute Resolution Services—
Practice Aid 99-1 (#
in Litigation Services:
Reports, A Nonauthoritative
Services Practice Aid 96-3 (#
Letters for Litigation
Valuation and Forensic and
Litigation Services Practice
Aid 04-1 (# 055298JA). This
guidance supersedes Consulting
Services Practice Aid 95-2, C
Understandings in Litigation
Services & Applicable
Special Report 03-01 (#
055297JA). This guidance from
the AICPA’s forensic and
litigation services committee
for CPAs who perform litigation
services supersedes Consulting
Services Special Report 93-1. |
Practice Aid 93-4 (#
CPA Expert (#
November 7–9, 2004
JW Marriott Orlando
For more information to place an
order or to register, go to
www.cpa2biz.com or www.aicpa.org
or call the Institute at
some of the organizations that
provide training in how to
become a competent financial
expert witness in commercial
litigation. Quite a few provide
quality education in the field
of litigation for consultants
and experts. Do your homework,
evaluate their offerings and
decide which ones fit your
Institute for Expert
training in the practical
aspects and ethical
considerations of expert
witness testimony. The goal is
to enable professionals to
become forensic consultants
and expert witnesses in their
respective fields of
Technologies Inc. (NTI)
training in the role of
computer forensics in the
courtroom and the methodology
for proper presentation of
expert witness testimony.
known for its legal and
medical information systems,
Seak also provides
opportunities for experts in
any field of specialization.
It offers seminars and
workshops in testifying
expert-report writing and
defending as well as seminars
and publications that explain
how attorneys impeach and
MANAGE THE ENGAGEMENT
CPA litigation services encompass several
roles: expert witness (a person who
renders an opinion before a trier of fact);
consultant (a nontestifying adviser—but
one who may become an expert witness at a later
date); and other (people who serve in
different roles, including a trier of fact,
special master, court-appointed expert, referee,
arbitrator or mediator). CPAs who plan to serve in
any of those capacities need to understand and
adhere to applicable standards, rules and laws and
exercise care in managing the engagement. Pay
particular attention to
Engagement letters. They
should state the issue you will testify about, the
form your reporting will take, what the engaging
attorney expects and other business details
including fees. Be specific about what you will
provide. For example, determine whether you’ll
assist in framing questions for the opposing
expert witness during the taking of the
deposition. Will the client expect you to be in
the courtroom or at the attorney’s side during the
trial? What does the attorney expect in terms of
ongoing trial consultations? Make sure all
questions are resolved and the details are in the
engagement letter in advance of the trial.
Fees. These vary widely
depending on the complexity and needs of the case,
the expert’s reputation and the geographic area.
Fees may be based on hourly or daily rates.
Accountants new to the process should seek advice
from CPA colleagues with experience in their
jurisdiction. Ask your state society and local bar
association for some names of experienced expert
The lawyer may ask you to
provide a “ballpark” estimate for the cost of your
services once you learn a little about the case
and have an idea what to expect in terms of time
and effort. Still, the workload may change as a
result of twists and turns the case may take. Make
sure your retainer and fee schedule cover this
contingency and the possibility the case may
settle out of court. After you reach agreement on
the major financial terms of the engagement, have
the attorney sign before accepting the assignment.
If possible, get paid prior to giving testimony;
then opposing counsel cannot suggest your opinion
has been compromised by fees due.
lose sight of the fact that you are being paid for
your time and expertise: Your opinion is not for
Discovery. If you are
retained as an expert witness, your work product
is subject to discovery, which means opposing
counsel has the right to review it and attempt to
refute your findings. Put very little of your
research and notes in writing. Label interim
working drafts “incomplete work product.” (Also
Attorney-Client Privilege: CPAs and the
E-Frontier, ” JofA , Apr.04, page
Skeletons in the closet.
The attorney will ask you to
disclose any information of a personal nature that
may diminish your effectiveness as a witness.
During the deposition and the “no-holds-barred”
cross-examination process, opposing counsel will
try to destroy your testimony and credibility. If
there is something in your background that could
allow such a tactic to succeed, tell your counsel
so the disclosure can be ameliorated. Attorneys
need to know about anything that has the potential
to damage their case.
||PRACTICAL TIPS TO
| Get your
credentials in order: Research
the many resources for obtaining
expert witness training and get
If a lawyer
offers an engagement in a
subject area that’s not your
strong suit, provide the name
of an expert whose
qualifications are a better
pertinent aspects of the
dispute and courtroom
procedures for the witness
Work closely with
counsel to review the rules of
the jurisdiction in which the
case is pending.
If you cannot
testify to something the
attorney wishes you to,
suggest another approach that
can be independently
presentation of sophisticated
accounting matters by using
PowerPoint charts, graphs or
Above all, be
careful, precise and truthful
in your deposition and on the
The range of accounting and financial issues
involved in court disputes today covers so many
aspects of finance that CPAs of all types may be
qualified to offer expert witness services in one
or more areas if they meet the academic and
professional requirements. The opportunity
includes accounting instructors, who can bring
their courtroom experience into the classroom as a
learning tool for the benefit of students. CPAs
with substantive knowledge in the following areas
may find expert witness work a beneficial
Audits and related accounting
Complex tax issues.
The valuation of assets.
The valuation of a nonpublic
The determination of the value of
goodwill and other intangibles.
Analysis of the profitability of a
company (in divorce situations).
Understanding of cost accounting
concepts and applications (cost allocations).
Financial statement analysis based on
ratios, growth patterns and the type and content
Information systems based on
electronically generated information flows.
Capital budgeting decisions.
Calculation of lost profits and
Tracing of assets.
Tax and nontax fraud.
Accountants willing to endure having their
professional lives scrutinized in the public arena
of a courtroom in front of a sometimes hostile
audience often find that service as an expert
witness or litigation consultant is a challenge
and an achievement—and even an unbelievable high.
CPA experts who communicate effectively with the
jury know, on leaving the witness chair, they’ve
made a significant difference in the outcome of
Matter of Fact |
T he difference
between lay witness and expert witness is shown in
this exchange in a trial involving former Louisiana
governor Edwin Edwards. Laura East, a Metairie,
Louisiana, practitioner, testified as an
investigative accountant for the prosecution to
prove Edwards spent $742,310 more than he reported
receiving from 1994 to 1996. Dan Small, Edwards’
attorney, defended him for rigging Louisiana’s
riverboat licensing process. The excerpt is from a
Baton Rouge Advocate story (“Witness,
Attorney Have Testy Session” by Christopher Baughman
and Adrian Angelette, The Advocate Online,
March 2, 2000):
Edwards’ attorney, Dan Small, set off the
fireworks when he said certified public
accountant Laura East had lied about testifying
as an expert in a federal trial in 1993. When
East took the stand Tuesday, she said the 1993
trial was the only time she had testified as an
expert witness in federal court. Under
questioning by prosecutor Mike Magner, she went
on to say it was her expert opinion that Edwards
spent $742,310 more in cash than he reported
receiving from 1994 to 1996. Prosecutors are
trying to prove Edwards spent the cash to hide
money he got by extorting riverboat casinos.
Edwards, his son Stephen and five other men are
on trial for allegedly rigging the riverboat
casino licensing process.
On Wednesday, Small started out by asking East
about her status as an expert in the 1993 trial.
East again said she had testified as an expert.
But when Small showed East a transcript from the
1993 trial, she changed her testimony. Small
said East had testified in that case for the
defendant as a “fact” witness. She had kept some
of the man’s books and testified about that,
Small said. The defense hadn’t even asked the
judge to designate her as an expert witness,
“I did not realize I had not testified as an
expert,” East told Small.
“So your sworn testimony was totally false,
wasn’t it?” Small asked.
“By accident,” East responded.
A short time later, [presiding judge Frank J.]
Polozola sent the jury and East from the
courtroom. Small asked that Polozola disqualify
East and throw out her testimony. He also asked
that the U.S. Attorney’s Office in Baton Rouge
file a perjury charge against East.
“I have never in 21 years done this,” Small
told Polozola. “I’m very upset about this.”
Small noted that Peter Strasser, who is part
of the prosecution team in the Edwards trial,
prosecuted the 1993 case that East was a witness
in. Strasser told Polozola he did not remember
East from the 1993 trial. In any event, Strasser
said, East had given expert testimony in the
1993 trial, even if she had not been qualified
as an expert.
Then Magner attacked Small, asking Polozola to
hold him in contempt “for misleading the jury
and the public.”
“I think that counsel has made a grandstand
play here,” Magner said. “He has made a very big
fuss out of very little.”
ruled East’s expert testimony could stand, and it
was up to the jury to determine its credibility.