Financial Expert Witness Communication

A Practical Guide to Reporting and Testimony

Bradley J. Preber

• Publisher: Wiley
• Year: 2014
• ISBN:
  9781118753859
• Edition: 1
• Topic: Business
• Subtopic: Accounting
• Index: Business

Learn what to expect—and what's expected—as an expert witness

Serving as a financial expert witness or consultant in lawsuits is a stressful, challenging, and tough business. In Financial Expert Witness Communication: A Practical Guide to Reporting and Testimony, financial forensic expert Bradley J. Preber leverages more than 30 years of experience to create a practical guide for financial expert witnesses as they face litigation reporting and testimony.

Financial Expert Witness Communication covers all areas of financial litigation including accounting, financial forensics, forensic technology, and damages—all from the point of view of an expert witness. The book is especially helpful for those who expect to be formally designated as an expert witness; however, it is also appropriate for financial forensic accountants, litigation consultants, and attorneys as they navigate the unique playing field of the financial litigation process.

This book gives financial experts strategies to defend the analysis, conclusions, and expert opinions they have at their disposal. It also provides thorough explanations of compliance, data limitations, and due diligence as well as how to handle demanding legal counsel, with a goal of better preparing them for the entire legal process.

The book is part of the Wiley Corporate F&A Series and was created as an educational resource for nonattorney financial experts involved with U.S.-based civil litigation or alternative dispute resolution proceedings. It takes a well-rounded approach by including special chapters on such concepts as retention, privilege, responsibilities, ethics, and testimony, all written by a nationally recognized expert. As a bonus, the companion website presents an additional expert witness case study and guidelines for fulfilling an expert witness role.

PART I
DISPUTE RESOLUTION AND THE FINANCIAL EXPERT

CHAPTER 1
Value of the Financial Expert in Litigation and Dispute Resolution

WHY BE A FINANCIAL EXPERT WITNESS?

Before reading any further in this book, you must be able to answer this question: Why do I want to be a financial expert witness? For those of you who do not aspire to be a testifying expert witness, this is still the ultimate question as you will likely be supporting someone who will be serving as a financial expert witness. Serving as a financial expert witness, or as a consultant assisting one, is a stressful, challenging, and tough business.

The financial expert witness will be in the public eye, with his or her personal and professional life exposed for the world to see. Personal opinions will be used to assist a trier of fact to decide important disputes. In some cases, those decisions impact the survival of an enterprise, future rights, or the livelihood of others. Let’s not forget grueling deadlines, incomplete data sets, and irrational adversarial disputing parties.

The quality of the financial expert witness’s work product is paramount, as it will be critiqued by opposing experts and attorneys who will be dedicated to finding ways to exclude your opinions. If successful, it could adversely impact the financial expert’s ability to get engaged as an expert witness in the future, depending on the reasons the testimony was deemed inadmissible. The cherry on top—the financial expert witness is often the last witness to testify at the end of an arduous trial.

But, for the financial expert witness such great responsibilities come with great rewards. Serving as an expert witness is an important role in our society. Expert witnesses are specifically provided for by federal civil litigation rules. Expert witnesses provide necessary assistance to triers of fact to allow them to make well-informed determinations outside their own personal expertise and experience. That is critical for the disputing parties to have a fair trial.

Serving as a financial expert witness also recognizes personal professional expertise. Being qualified as an expert by the court is official recognition of your professional skills, knowledge, education, experience, and training in your field. It is an affirmation that you possess superior expertise compared to the average citizen in your chosen profession. This may enhance your ability to be retained in the future and is a justification to charge premium rates for financial expert witness services.

VALUE OF THE FINANCIAL EXPERT WITNESS UNDER FEDERAL RULES

Fortunately for all expert witnesses, including financial expert witnesses, the Federal Rules of Evidence (FRE) and Federal Rules of Civil Procedure (FRCP) describe the value of an expert witness in a federal case.¹ The FRE and FRCP are the official guidance for civil litigation proceedings adopted by the federal courts and numerous state jurisdictions. Among other matters, the federal rules govern expert witness testimony and admissibility. The financial expert witness should be familiar with the FRE and FRCP when performing dispute resolution services in a federal setting.

Under the FRE, Rule 702, Testimony by Expert Witnesses, a qualified expert must have “scientific, technical, or other specialized knowledge” obtained “by knowledge, skill, experience, training, or education” that will “help the trier of fact to understand the evidence or to determine a fact in issue.” Based on this rule, the federal courts are instructed to value the qualifications of financial expert witnesses because they possess technical and specialized knowledge that may be helpful to the trier of fact when making decisions about disputed issues. For financial expert witnesses, that means undergraduate and advanced degrees in accounting, finance, economics, and other areas have value. In addition, professional credentials, like Certified Public Accountant or Chartered Financial Analyst, are valuable, together with the continuing education these designations typically require. Last, but certainly not least, the courts recognize the value of financial expert witnesses’ experience serving clients, the profession, and the community.

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Examples of Valued Financial Expert Credentials

• Advanced education degrees
• American Academy of Financial Management:
  • Chartered Wealth Manager (CWM)
  • Chartered Asset Manager (CAM)
  • Chartered Trust and Estate Planner (CTEP)
  • Chartered Portfolio Manager (CPM)
• American Institute of Certified Public Accountants:
  • Certified Public Accountant (CPA)
  • Certified in Financial Forensics (CFF)
  • Accredited in Business Valuation (ABV)
• American Society of Appraisers:
  • Accredited Senior Appraiser (ASA)
• Appraisal Institute:
  • Member Appraisal Institute (MAI)
• Association of Anti-Money-Laundering Specialists:
  • Certified Anti-Money-Laundering Specialist (CAMS)
• Association of Certified Fraud Examiners:
  • Certified Fraud Examiner (CFE)
• Association of Insolvency and Restructuring Advisors:
  • Certified Insolvency and Restructuring Advisor (CIRA)
• Certified Financial Planner Board of Standards:
  • Certified Financial Planner (CFP)
• Chartered Financial Analysts Institute:
  • Chartered Financial Analyst (CFA)
• Institute of Internal Auditors:
  • Certified Internal Auditor (CIA)
• Institute of Management Accountants:
  • Certified Management Accountant (CMA)
• Information Systems Audit and Control Association:
  • Certified information Systems Auditor (CISA)
• National Association of Certified Valuators and Analysts:
  • Accredited Valuation Analyst (AVA)
  • Certified Valuation Analyst (CVA)

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The FRE, Rule 702, allows expert witnesses to testify in trial only if their testimony is “based on sufficient facts or data” and “is the product of reliable principles and methods” that the financial expert witness “has reliably applied . . . to the facts of the case.” As such, the federal courts value financial expert witnesses’ abilities to understand and identify relevant case evidence, especially accounting, financial, and economic facts and data commonly dealt with by the financial expert. Also valued are reliable and generally accepted principles and methods used by financial expert witnesses to analyze relevant financial facts and data. Industry standards, such as generally accepted accounting principles, and audit and valuation standards, are frequently accepted by the courts as reliable principles and methods for use in trial. Furthermore, courts have acknowledged that many of the procedures used by financial expert witnesses in the normal course of business are reliable methods that can be used to review and analyze relevant facts and data in a case. Procedures commonly used by financial expert witnesses include, but are not limited to, the following:

• Analytical tests
• Budgeting
• Compliance and control tests
• Comparative financial and ratio analysis
• Corroboration
• Data analytics
• Examinations
• Financial modeling
• Forecasting
• Inspection
• Interviews
• Inquiries
• Observations
• Projections
• Recalculations
• Reconciliations
• Regression analysis
• Reperformance
• Research
• Statistics
• Substantive tests

Turning now to the FRCP, it is clear that the federal courts also value the communication talents of financial expert witnesses. Under FRCP, Rule 26(b)(4)(A), financial expert witnesses are required to produce “a written report—prepared and signed by the expert.” After submission of the written expert report, an opposing party “may depose any person who has been identified as an expert whose opinions may be presented at trial.”² During the trial, financial expert witnesses are required to orally testify about their opinions and the bases for them if called to do so. Obviously, financial expert witnesses with effective written and oral communication skills will be more valuable to the trier of fact and the client.

Professional Standards ...