A CPA may be called upon as an expert witness to render a professional opinion, whether in a deposition or at trial. Expert witnesses may be engaged in many types of civil and criminal cases involving financial issues and disputes ranging from IRS audits to Ponzi schemes, including:
- Fraud.
- Tax.
- Real estate.
- Contracts.
- Regulatory compliance.
- Insurance.
- Embezzlement.
- Accounting malpractice.
For instance, CPAs often provide expert opinions on matters such as business and property valuations, economic loss calculations, due diligence or risk management.
The witness stand
A central role of an expert witness CPA is to translate financial numbers into an understandable framework for a judge, jury or arbiter. That will often require an interpretation of accounting jargon. The CPA has a vital contribution to make, based on specialized skills, knowledge, experience and training. As an example, a CPA who is asked to opine on a model for damages might consider executive compensation with reference to comparable business or discuss investment rates of return or the valuation of an enterprise.
It is important to bear in mind the distinction between retaining a CPA as a consultant and engaging one as a testifying witness. The work of a consultant may remain privileged and protected from disclosure to the other side; however, once a CPA becomes a witness, opponents are entitled to share their communications with the attorneys.
In preparation for trial, federal rules allow attorneys to assist CPA witnesses in preparing their report but mandate that the experts should drill down themselves, taking a bottom-up approach. Staff may help in the preparation, but the experts must directly review relevant documents. CPAs should also have access to contrary facts and opinions — as witnesses, they can therefore assert that opposing views did not change their opinions.
Submitting an expert report does not automatically entitle a CPA to testify. The rules governing the admissibility of a CPA’s expert testimony have been set out in the Federal Rules of Civil Procedure and Evidence. Federal judges also enjoy broad latitude in deciding whether an expert’s opinions are reliable, relevant and helpful for comprehending complex issues. Experienced CPAs will know to use the latest and most reliable methodologies so the court won’t throw their opinions out as unreliable.
Good faith
What are the most important attributes of an expert witness CPA? It partly depends on the setting. At deposition, key qualities are responsiveness, accuracy and brevity; at trial, accuracy, clarity and persuasiveness come to the fore.
What might tip the balance in litigation is a general assumption of CPA honesty. Surveys show the profession ranks high for integrity, only slightly behind the clergy. An emphasis on independence, due diligence and skepticism is ingrained in the professional mindset.
If you are contemplating litigation, you may want to consider whether engaging a CPA as an expert witness might be a powerful strategy, raising the bar for your opponents. You will need to discuss the pros and cons carefully — and we are available to discuss your particular needs.
Questions? Contact an MCB Advisor at 703-218-3600 or click here. To review our business planning articles, click here. To learn more about MCB’s tax practice and our tax experts, click here.
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