When it comes to complex financial litigation, an expert witness with the skills and training of an accountant can be an essential part of any case. They can provide answers and insights into the intricacies of company balance sheets or the value of personal property. With a range of specializations, certifications, and professional backgrounds, selecting an accounting expert witness can present a unique challenge. However, the right expert can greatly increase the odds of victory well before a case ever reaches trial. So how can you be sure you’re selecting the right accounting expert witness for your next case? We interviewed several top accounting experts to find out.
What They Do
According to Robert Castro of Fairfield Forensic & Valuation Services, the types of issues that accounting expert witnesses can speak to are varied, “It really is wide ranging – from valuation issues to business issues and customs in a particular industry.” In general, however, Castro most often works on the following:
- Technical accounting and auditing issues
- Matters relating to an error or irregularity
- Fraud investigations
- Contractual and other disputes
- Due diligence
- Customary operating procedures in practice
- Valuation
- Investor disputes
- Regulatory representation
In addition to these commercial issues, accounting expert witnesses can be used on more domestic matters such as divorce settlements and estate valuations. These are areas that Ralph Anderson of The Green Group is most familiar with, “Matrimonial, Valuations, Tax issues, Medical Practices, Estate and Gift tax issues, and Cash flow and tax structures are the expert witness matters we typically get involved with.”. Steven Linker, is another accounting expert witness who sees a wide variety of case types. He describes his practice as, “one third matrimonial disputes, one-third commercial issues, and one-third business evaluations.”
Within these case types, the work that an expert accountant will do for his or her client can vary immensely. Some may specialize in valuating property, assessing commercial tax regulations, or unraveling the history and purpose of various transactions. “There are two things that I personally have been asked to evaluate the most.” Says Douglas Carpenter, Director of the Tax Services Group at Meaden & Moore. “The first is to perform calculations and this most often involves comparisons of different scenarios. For example, if a hedge fund was mismanaged, how much money should the investor have earned had it not been mismanaged? The second is to perform forensic accounting functions. This involves tracing the monetary path of a transaction. It is very difficult to do anything in the world without creating a financial trail, and explaining the links within this trail is most often needed when questioning an accounting expert witness.”
How They Help Your Case
In general, accounting expert witnesses are valuable because they can distill complex financial concepts and evidence into a form that is easier for judges, lawyers, and jury members to understand.
As Douglas Carpenter explains ,”Cases often deal with very complex financial issues and the most significant contribution is when the accountant is able to explain the information clearly and concisely so that any layman can understand the facts presented.”. However, the value that a good accounting expert can deliver goes well beyond their ability to communicate complicated ideas in a clear and simple way. As Robert Castro explains, “Often, the accountants make the case. There is an old adage a person who is their own lawyer has a fool for a client. In my world an attorney or their client who doesn’t at least consult with an accountant on a case is a fool. There are many cases that I have seen where neither the attorney nor their client knew that their case could be bolstered with an accounting expert witness until it was too late.”
“I have yet to see the case that was hurt by making the effort to see if an accounting or other expert would be of benefit. Often if we can’t help we will lead them to someone who can.”
In addition to their financial acumen, accountants are able to help the credibility of a case simply by being associated with it. As David Goodman, Managing Director of Lawrence B. Goodman & Co., P.A. explains, “Accountants are usually viewed as being ethical and practical. They can provide credibility as a witness.”. By projecting an air of professional credibility and ethical obligation, accounting experts can help convince a jury of the validity of a case on a subconscious level.
Still, it is important for attorneys to select an accountant with the right experience and training in order to effectively speak to the central issues of the case at hand. David Komatz of Crossroads Accounting explains that, “When any expert witness testifies, the accountant must be sure that he/she only testifies as to what he/she is knowledgeable about. For instance, I could not testify about tax matters for an oil and gas company as I am unfamiliar with those issues…the testimony must be based on experience and not be self-serving.”
How to Select an Effective Accounting Expert
Selecting an effective accounting expert depends on more than the credentials and experience that the expert candidate brings to the table. Other factors such as price and personality are also very important to consider when selecting an accounting expert. As Mark Gottlieb of MSG, a New York based business valuation, forensic accounting, and litigation support firm, explains, “Don’t choose an expert based upon [a low] price. You get exactly what you pay for. Find someone with a diverse level of experience.” An additional factor for attorneys to consider are the tools and resources at the expert’s disposal, which may place independent experts at a disadvantage compared with their peers at large and established accounting firms. “A firm, rich in resources, is better than a single practitioner working alone” says Gottlieb.
In addition to an expert’s costs and access to resources, attorneys should also consider an expert’s personality. “Keep in mind that you will be spending a lot of time with your expert, and discussing the case documentation in grinding detail.” Says Jim Martin, Managing Director of Cendrowski Corporate Advisors. “It’s a good idea to meet with a potential expert and be comfortable with their personality and style to be sure you will be able to work closely together.”
In addition to having a personality that is easy for an attorney to work with, it is also important to consider the fact that the most effective experts must be able to shine on the stand.
This requires a combination of personality and experience, as Richard G. Witkowski of Nicola, Gudbranson & Cooper LLC explains “Interview the expert witness candidates and look for a competent expert with an outgoing personality. Try to locate and retain an expert with experience in the litigation process. Obtain a list of prior engagements that resulted in actual trial testimony.”. An accountant with stellar credentials but limited communication skills and charisma could make them a bad choice for a testifying role. Tiffany Couch, Principal of Acuity Forensics, agrees “The best forensic accounting experts are ones who can explain complicated financial matters in a concise, easy-to-understand way. Their ego is not in the way of their ability to communicate effectively with jurors, attorneys, and judges. They are impartial. And, they provide sound advice on the case from document requests, to additional potential claims, to the elimination of claims if evidence does not support.”
Credentials and Experience
There is a debate between the levels of credentialing that is needed for an accounting expert to be an effective expert in a courtroom setting. While most accounting professionals believe that an expert should at the very minimum have their CPA certification, there is a wide variety of ancillary qualifications and certifications that might give one accounting expert an edge over another when it comes to credibility. Still, there is no clear consensus over how necessary these additional certifications are for an accounting expert. As Robert Castro explains “there are many other credentials that an accounting expert can possess, but after the CPA they are just derivatives of the CPA credential and I’m not sure what if any value they add over the CPA, unless they are in a different field not covered by the CPA license – such as an accreditation in valuations and appraisal.”
There are some experts who claim that a CPA certification is unnecessary, such as David Komatz “Many attorneys will seek to find a CPA but in actuality the only difference between a CPA and a non-CPA is that a CPA can issue an opinion on a financial statement. Unless the case includes a requirement for testimony on financial statements, then a CPA is not required.”. Still, a CPA is likely to be your best bet for an expert candidate, and is largely regarded as a minimum requirement of anyone who would like to pursue expert witness work as an accountant.
In addition to the proper credentials, it is also important for any accounting expert to have significant industry experience. “Attorneys want to use accountants with 20+ years experience.” says Douglas Carpenter. “This is important both in terms of their expertise and from an image standpoint. Recognized credentials are also important, (CPA, CFP, CFA). Beyond that the accountant needs an ability to be able to communicate details of the case clearly and with simplicity. The ability to do that is indicative of a deep understanding of the topic.”
As Carpenter recognizes, attorneys should be careful to select an accounting expert with exemplary poise and communication skills. Mark Gottlieb says that “Oral and writing communication skills are very important. The ability to be a quick study and assess the facts and circumstances is vital.”. If an accounting expert is going to be successful in a trial environment, he or she has to be able to communicate their technical expertise to the jury.
Red Flags to Avoid
When searching for the right expert witness for your case, there are many mistakes that, while easily avoidable in the expert selection stage, can have disastrous consequences down the line.
Ted Lanzaro of Lanzaro CPA, LLC says that one of the easiest mistakes for attorneys to make when selecting an accounting expert is to select an accountant who lacks objectivity. Or one who has demonstrated this in their previous courtroom appearances. “Attorneys should look at CV’s to make sure the expert is qualified and will survive a challenge by opposing attorney. The biggest red flag would be if they have a history of providing expert opinions always in favor of one position – a ‘hired gun’”
Steven Bankler, a CPA based in San Antonio who specializes in forensic accounting and litigation support agrees “Attorneys should avoid an expert that is nothing more than a “hired gun”, is quick with an opinion without reviewing sufficient docs, and doesn’t seem to be doing due diligence. Every attorney should review their expert’s prior opinions to determine that they are thoughtfully and carefully written and do not contain self-serving or not documented statements.”
In addition to a questionable litigation history, attorneys should also be careful to avoid experts who have a record of professional sanctions “Candidates with a history of a malpractice claims or ethics and disciplinary complaints should be avoided.” says Richard Witkowski “If possible, several candidates should be considered before making a decision.”
Attorneys need to determine what they will need from their expert on a case-by-case basis. Jim Martin explains “Cases are all different and this drives lot of different requirements on the expert selected. The accountant should be able to handle the specific case issues and production volumes involved.” While some cases may require a skilled auditor to unravel the complexities of the issue at hand, others may require a hands-on familiarity with the standards and practices of a particular industry. Martin explains that “A number of accounting experts have an academic background, which could limit their practical understanding of business situations. [Attorneys] should be sure to check the potential experts’ credentials and experience to be sure they have the relevant expertise in the specific area involved in the litigation.”
Get Your Expert Early
In general, every accountant interviewed for this article agreed that there was one major area in which attorneys could improve their use of accounting experts. This was bringing them into their cases sooner. “There is an old joke – What is the most important minute in life? Answer – the last minute, because nothing would get done without it. This especially applies to attorneys who always seem to be contacting us to do work when their case is next Tuesday and the job requires 100 man hours to complete.” Says Ted Lanzaro.
Jim Martin agrees “In general, I often wish attorneys would engage an accountant earlier in the litigation process. Often I am called when discovery is closed, or only open for a short while, and the attorney has not requested all the potentially available documents, or perhaps has requested them but did not realize that valuable information was missing. For example, an attorney might request “financial statements” and only receive a trial balance for a single period. This might be due to concerns about cost, but in actuality, involving the accountant earlier can help make the discovery process a lot more efficient by requesting the correct materials the first time and evaluating what is received.”
