Complex legal disputes turn accountants into sleuths: attorneys increasingly call accountants as expert witnesses.

Complex legal disputes turn accountants into sleuths

Amid the doldrums of recession some accountants in Los Angeles County are remaining prosperous by lending their skills to helping resolve a growing number of financial legal disputes.

"Attorneys used to rely more on economists to serve as expert witnesses in business litigation" but now accountants are becoming more in demand because they are more detail-oriented and objective, said Jason A. Engel, director of litigation services for the accounting firm Levine, Cooper, Spiegel & Co.

Albert Theiss Jr., managing partner at the Los Angeles office of Coopers & Lybrand, added that accountants are adept at litigation support because "with our audit background we can determine if financial information is accurate, appropriate and complete."

Engel noted that accountants have been used as trial witnesses since the 1600s but lately the field has become more popular as business litigation has become more complex. Most of the Big Six accounting firms have established litigation support practices, though some use auditing experts for litigation support.

Peterson Consulting L.P., a Chicago-based firm that specializes in litigation support and consulting, has grown from 30 people to 450 nationally since it began 10 years, said Robert Dyer, a vice president in the Los Angeles office.

William Trefethen, a supervisor in the litigation support division at West Los Angeles CPA firm Parks, Palmer, Turner & Yemenidjian said that his firm just started a litigation support practice last June and it now has grown to nine staff members who were recruited from other firms.

"Because the area is profitable, more and more accountanting firms have entered this field, but you have to know how to do it," he said.

To excel at litigation support, explained Engel, an accountant has to have "a knack or an instinct or a nose to know which documents to look at" because during most cases there are hundreds of documents to sift through and "no one will pay you for going through all documents."

Theiss said that litigation support encompasses two types of skills: "Determining if financial information presented by companies involved in a lawsuit is accurate and complete and then providing the analysis in testimony before the court."

Engel said accountants can be of great assistance to attorneys before a case even reaches trial. In the pretrial discovery phase, accountants can instruct lawyers on what financial documents they should request from the other side before the trial begins. The process can "bring reality to the table and ensure the party is not just bringing a frivolous suit," he said.

In the cases that Theiss's firms has worked on, accountants from different firms have testified on behalf of both the plaintiff and the defendant, but he said that the side that is believed by the jury is the one "that does the best work and gives the best presentation."

Engel stressed the importance of defendants hiring accountants by citing the example of what can go wrong without one. A few years ago, when Pennzoil sued Texaco, the jury based its damage awards on the figures presented by the plaintiff without any independent review to determine if these damages were accurate.

In contrast, "accountants can present the facts and keep both sides honest and present what is going to the jury without hype or exaggeration," said Engel because "accountants can bring reality to the court room."

Through his sleuthing work on behalf of defendants, Engel said he has been able to save his clients millions of dollars by carefully reviewing the plaintiff's financial records. However, Engel stressed that he remains objective in checking both sides' books.

For example, Engel said, a few years ago he worked on behalf of attorneys defending a Fortune 500 company. The plaintiff, a computer products distributor, claimed that the defendant has wrongfully terminated their distribution agreement and caused the demise of its business.

But when Engel examined the plaintiff's books, he discovered that the distributor had become more profitable after the distribution agreement ended and testified about his conclusions.

In another case that Engel cited, he assisted attorneys who were defending a national insurance company. Engel said that in his analysis he discovered the $4.5 billion acquisition plan would weaken the finances of the insurance company and as a consequence would harm the policyholders.

Engel formerly worked in divorce cases to help find assets hidden by a spouse before the divorce proceedings began. But now he has left that area to specialize in commercial litigation because he found that in divorce cases "people don't act rationally."