Forensic and Investigative Accounting
Chapter 8
Litigation Services Provided by
Accountants
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Litigation in the United States
The U.S. tort system cost $248.1 billion in
2009, which was about $808 per U.S.
citizen ($12 in 1950).
 Medical malpractice costs totaled nearly
$30.4 billion in 2007, or about $101 per
person (compared to $5 per person in 1975).
 Some of these costs are expert witnessing
fees.
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Litigation in the United States
The five major phases of litigation are:
 Pleadings.
 Discovery.
 Pre-trial conferences.
 Trial.
 Outcome.
 Possible appeal.
Much of the work for forensic accountants occurs
in the discovery stage.
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Methods of Discovery
Interrogatories.
 Depositions.
 Admissions of facts.
 Request for production.
 Subpoenaing.
 Ask to examine documents for authenticity.
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Forensic Report
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Civil Procedure
Body of rules and practices by which justice
is handed out by the legal system.
Federal Rules of Civil Procedure (FRCP):
governs U.S. district courts.*
 Federal Rules of Criminal Procedure.
 Federal Rules of Evidence.
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* Find at www.law.cornell.edu/rules/frcp/overview.htm
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Types of Litigation Services
Provided by Accountants
Consultant
 Expert witness
 Court-appointed experts and special
masters
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Standards of Conduct for Performing
Litigation Services
Knowledge, skills, experience, training, and
education.
 Professional codes of conduct.
 Conflicts of interest.
 Written agreement to perform litigation
services.
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Expert vs. Lay Witnesses
A lay (or fact) witness testifies as to facts.
 An expert witness is an individual who,
because of specialized training or
experience, is allowed to testify in court to
help the judge or jurors understand
complicated and technical subjects.
 Summary Witness.
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Qualifying as an Expert Witness
Under the Frye standard, the test for admitting
expert testimony is:
– Whether the expert’s testimony will assist the
trier of fact in understanding the evidence or in
determining a fact in issue.
– Whether the theories and/or techniques relied
upon by the expert are generally accepted by
the relevant professional community.
– Whether the particular expert is qualified to
present expert testimony on the subject at issue.
(continued on next slide)
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Qualifying as an Expert Witness
Under the Federal Rules of Evidence, a judge will
permit an accountant to testify as an expert witness only
if the judge decides that:
– The accountant’s testimony will help the jurors or
judge understand the evidence or determine a fact in
issue.
– The accountant is qualified as an expert by
knowledge, skill, experience, training, or education.
– The accountant can show that his or her testimony (a)
will be based on sufficient facts or data and (b) will
be the product of reliable principles and methods that
have been applied reliably to the facts of the case.
(continued on next slide)
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Qualifying as an Expert Witness
In Daubert v. Merrill Dow Pharmaceuticals,
Inc., the U.S. Supreme Court established the
rule for federal courts that trial judges have a
special responsibility to ensure that scientific
testimony is not only relevant, but also reliable.
In Kumho Tire Company, Ltd. v. Carmichael,
the Supreme Court decided that a judge’s
“gatekeeping” obligation applies not only to
scientific testimony but to all expert testimony.
(continued on next slide)
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Qualifying as an Expert Witness
In Daubert, the U.S. Supreme Court suggested that
judges consider the following factors:
– Whether the theory or technique in question can be
(and has been) tested.
– Whether the theory or technique in question has
been subjected to peer review and publication.
– The theory or technique’s known or potential error
rate.
– Whether the theory or technique has attracted
widespread acceptance within the relevant
community.
(continued on next slide)
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Qualifying as an Expert Witness
Figlewicz and Sprohge in their article, “The CPA’s
Expert Witness Role in Litigation Services: A Maze
of Legal and Accounting Standards,” offer ten
guidelines to help avoid legal challenges:
1. Know the relevant professional standards.
2. Apply the relevant professional standards.
3. Know the relevant professional literature.
4. Know the relevant professional organizations.
(continued on next slide)
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Qualifying as an Expert Witness
5. Use generally accepted analytical methods.
6. Use multiple analytical methods.
7. Synthesize the conclusions of the multiple
analytical methods.
8. Disclose all significant analytical
assumptions and variables.
9. Subject the analysis to peer review.
10. Test the analysis—and the conclusions—for
reasonableness.
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Preparing to Testify as an
Expert Witness
Maintaining independence from the client.
 Evidence upon which experts may rely.
 Use of confidential client information.
 Expert reports.
 Working papers.
 Evaluation of other experts.
 Exhibits and other demonstrative evidence.
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Testifying at a Deposition
Expert witnesses can expect to be asked about the
following at a deposition:
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The scope of their assignment.
Their current employment (job title, duties).
Their educational background.
Licenses.
Work experience.
Memberships in professional organizations.
(continued on next slide)
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Testifying at a Deposition
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Publication and lectures.
Fields in which they are qualified as an expert.
Other work they have performed as an expert
or other litigation consultant.
What compensation they are receiving (and
what percentage of their compensation is
derived from testifying as an expert witness).
What opinions they have formed.
The bases for their opinions.
Almost anything.
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Cross Examination Tactics
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Do not speak to people outside courtroom while waiting and during
breaks.
Turn off your cell phone or pager before entering the court.
Do not wear emblems.
Avoid humor, but laugh at judge’s humor.
Keep your hands on top of the table, not hidden.
Be sure your attorney questions you in detail about your
qualifications in order to impress the judge/jurors. Do not allow the
other side to stipulate you as an expert.
Dress neatly and conservatively.
Arrive on time at the court house (have multiple reminders).
When taking the oath as a witness, say loudly, “I do.”
Be sincere and respectful.
(continued on next slide)
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Cross Examination Tactics
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Talk directly to the jurors (or judge if no jurors). Look them in the eyes.
Make contact with each of the jurors.
Explain number carefully, possibly using analogies with tax returns and
checkbook.
Pausing does not harm you.
Use first person, active person: I reviewed these records, and I found….
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Tell stories about people.
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Be careful when shown passages from textbooks, etc.
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Jurors have nothing to do for long periods. They are always watching. Be
careful every place in the court house, even while driving to the court
house.
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When you are in trouble in the court room, do not lean back. Instead lean
forward.
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When you are finished, do not leave the courtroom until there is break.
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Testifying at Trial
According to Bursztajn and Brodsky in their article,
“Ethical and Effective Testimony During Direct
Examination and Cross-Examination Post-Daubert,” the
following should be the primary goals of an expert
witness:
– To communicate the truth to the jury in an ethical,
objective, and effective way.
– To maintain your autonomy, authenticity, and
integrity.
– To uphold the values of your profession.
(continued on next slide)
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Testifying at Trial
– To interact with attorneys and with the judge and
jury in an atmosphere of mutual respect.
– To engage in an ongoing dialogue with your
attorney so that, together, you can educate as well as
learn from the judge and jury as to what questions
each may have.
– To speak directly to the issues.
– To make complex matters understandable without
oversimplifying.
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Liability of Expert Witnesses
Witness immunity
– Threat of lawsuit
– Claims of negligence
 Bases for liability
– Breach of contract
– Negligence
– Criminal process
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Daubert
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Searchable Databases of Daubert Decisions
“Daubert on the Web”
• Online free tracking service.
• www.daubertontheweb.com.
• In July 2013, 87 cases were under the field “Accountants and
Economists” with an admissibility rate of .598.
• There are a total of 25 fields with various “admissibility rate,”
such as
Appraisers
Computer experts,
Criminologists,
Marketing experts,
Polygraphers,
Statisticians,
0.800
0.667
0.847
0.333
0.121
0.625
In Louisiana, there have been at least 33 Daubert challenges with a 60% admission rate.
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Written Reports
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An expert should never draft a written report
of any kind unless he or she has been
expressly directed to do so by hiring counsel.
Federal Rules of Civil Procedure 26(a)(2)(B)
requires a written report.
Keep a diary of interview dates, etc.
Do not destroy interview notes.
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Written Report Contents
(FRCP 26(a)(2)(B))
All opinions to be expressed and the bases for them.
 Data or other information considered in forming the
opinions.
 Any exhibits to be used as a summary of or support for
opinions.
 Witness qualifications, including a list of all publications
authored within the last 10 years.
 Witness compensation.
 List of other disputes in which the witness has testified at
deposition or trial during the last 4 years.
 Signature of the expert testifying.
Note: Federal Rule of Civil Procedure 27(e)(1) indicates that an
expert must update a written report or disposition.
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Types of Expert Reports
Fact-oriented report – gathers and evaluates
facts and uses them to prepare a report. Check
and re-check the numbers and the facts.
Opinion report (e.g., valuation report) – more
subjective and rely more on the professional
judgment of the expert.
Combination of above types.
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Trends and Outcomes of Daubert and
Frye Challenges
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Number of challenges to financial expert witnesses fell in
2010, but the success rates increased to their highest level
since 2005.
Five federal circuits adjudicate the majority of all Daubert
challenges to financial expert witnesses.
Plaintiff financial expert witnesses are challenged more
frequently, consistently two to three times as often as
defense experts, but their exclusion rates have been lower
than defense experts in five of the last six years.
Economists, accountants, and appraisers are the more
frequently challenged financial expert witnesses but also
the ones more likely to survive the challenge.
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Trends and Outcomes of Daubert and
Frye Challenges
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Case type affects the frequency and outcome of Daubert
challenges to financial expert witnesses.
For the 11th consecutive year, lack of reliability is the top
reason financial experts are included.
Exclusions more commonly result from the misuse of
accepted methodologies than from the introduction of
unusual or untested analytical methods.
Source: PricewaterhouseCoopers, Daubert Challenges to Financial Experts: An 11-year
Study of Trends and Outcomes, 2011, p.6.
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