Litigation Services Handbook: The Role of the Accountant as Expert Witness.

Energetic and hard-working CPAs in public or private practice can, in the routine perfomrance of their jobs, easily become experts in numerous intricate and arcane financial matters that have a growing applicability. For decades, CPAs labored solely for the clients and employers who paid the bill for their services. In the last 10 to 15 years, however, the court system of our increasingly litigious society has developed another use for that expertise: to explain these same intricate and arcane issues to jury members and others less familiar with financial matters.

Lawyers are looking more and more to accountants for help these days. Whereas 10 years ago few CPAs offered litigation support services, an increasing number now devote a significant portion of their practice to this area.

What's necessary to become active in this field? Quite simply, two things:

1. Expertise in one or more facets of financial matters.

2. Knowledge of the court and litigation system.

Most CPAs have likely satisfied the first item. The Litigation Services Handbook will help to easily satisfy the second.

Editors Frank, Wagner and Weil have done a superb job of assembling a well-experienced and knowledgeable group of contributing authors, mostly partners in CPA or law firms or well-known writers in this field. Insights garnered from their practical experience are spread throughout the book's 5 sections and 34 chapters.

The basics. For the novice, the first section focuses on the litigation environment and clearly explains the court system, the legal process and the role of the CPA as expert witness. Practical considerations such as sample engagement letters and advice on interacting with attorneys and litigants are also provided, along with sources of data for estimating amounts for damage analysis, lost profits and the value of a business.

One of the best chapters in this section deals with how to effectively organize and present illustrative and convincing data in the courtroom via charts and graphs.

Practice areas. The next three sections deal with particular practice areas in which the CPA can effectively render expertise:

* Commercial/civil cases, which deal with enforcing, redressing or protecting private rights. Anti-trust, patent infringement, bankruptcy and breach of contract are the most common issues. Most CPAs become involved in these types of cases.

* Criminal cases, which deal with violations of laws forbidding acts committed or omitted against the state, such as fraud and embezzlement. The government, rather than a private individual or entity, initiates these cases. Here the federal government wields one of its most potent statutes, the well-known and oft-criticized Racketeer-Influenced and Corrupt Organizations Act (RICO) to combat organized crime. Although fewer CPAs participate in criminal cases than in civil cases, the liberal extension of the RICO statute to white-collar crimes has fostered a growing need for CPAs to clearly explain and illustrate the alleged crime committed.

* Family law/marital dissolution cases, which deal not only with the necessary financial issues, such as determining child support and alimony and tracing and apportioning assets, but also the heartrending psychological trauma the involved parties experience, which no law or business school can prepare the CPA witness for.

The chapter on divorce cases is one of the best in the book because of its frank discussion of the difficulties of dealing with economic issues that are colored by the emotional tensions and distresses of hurting and bitter clients. For the CPA considering this area, the author provides wise counsel when he writes, "The friendly divorce is myth and rarely occurs."

Damage assessment. For the CPA who wants to develop expertise in damage assessment, part five contains seven detailed and practical chapters on issues such as business valuation, estimating lost earnings and profits and the pros and cons of using statistical techniques to organize accounting data.

Tackling fraud. The last chapter of this section, perhaps the most enjoyable, deals with tax fraud. Describing patterns of evasion, the authors note that some schemes "will be brazen, some stupid, some intricate and clever."

Numerous situations are discussed to illustrate that some evasions are extremely difficult to discover while others are suprisingly easy to detect because the taxpayer either leaves behind damning evidence or engages in practices that have no legitimate explanation.

The tax fraud chapter is also a good "how-to" manual from two perspectives: general strategies used by the government to successfully prosecute tax evasion cases and common defensive positions taxpayers take to avoid being convicted.

The book is well written and well illustrated with charts, tables and examples. Although there is a fair amount of "legalese," the text embodies terms and concepts the prospective expert witness must become familiar with in order to function effectively in the courtroom arena.

One suggestion: All chapters in future editions ought to incorporate a few of the winning and losing strategies gleaned from actual court decisions. Currently, only the tax fraud chapter includes this insightful information.

Into the courtroom. For CPAs thinking of expanding their services beyond the boardroom into the courtroom, the Litigation Services Handbook is an excellent primer on the dynamic role played by the accountant as expert witness. For practitioners already involved in litigation support, a careful reading will likely improve current service and heighten awareness of new areas where accounting expertise can be used. Finally, business school professors can use the book to make their students aware of this unique and fasicinating additional service that CPAs can provide.

Michael Davis, CPA, PhD associate professor of accounting KPMG Peat Marwick faculty fellow Lehigh University Bethlehem, Pennsylvania