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Evaluating the competence of a financial expert witness: seven factors for consideration.

The financial complexities involved in most modern business disputes often necessitate the need for financial expert witnesses to provide testimony for inclusion as evidence in legal trials. These experts can be called upon to aid in the compilation, testing, and evaluation of financial evidence, as well as to communicate the results to a judge and jury. Because completing these tasks can be an important prerequisite for the successful resolution of litigation, a qualified financial expert represents an invaluable asset for any side in a legal dispute.

Rule 702 of the Federal Rules of Evidence establishes the qualifications necessary for an expert witness to testify in a court of law (see the sidebar, Common Terminology Relating to Expert Witness Testimony). Although this broad standard speaks strictly to the admissibility of expert testimony, several additional factors--education and professional credentials, relevance of prior work experience, communication skills, impartiality, effective preparation skills, personal background, and the ability to justify an opinion--should be considered when evaluating the potential effectiveness of an expert witness.

Education and Professional Credentials

The quantity and quality of the education and professional credentials possessed by an expert witness can serve as a sign of the individual's expertise, as well as a signal of the expert's quality to potential jurors. Care should be taken to ensure that the potential expert's qualifications match the scope of the engagement. At minimum, a qualified expert witness should possess a bachelor's degree from an accredited institution, and the possession of more advanced degrees is common. The quality of the school offering the degree, as well as the reputation of the academic program, should be considered as a means of assessing an individual's suitability for complex data gathering and analysis.

Other professional credentials might also be relevant when assessing the skills of a potential expert witness. Whereas certain credentials might signify a general knowledge of financial matters, others might suggest that the holder possesses more specialized knowledge. It is critically important to understand the scope and limitations of an expert's professional credentials, as well as the relevance of these credentials to the matter being litigated. Exhibit 1 presents a sample of common professional credentials, as well as a description of the expertise they signify.
EXHIBIT 1

A Sample of Common Professional Credentials Relevant to Financial
Expertise

Credential            Description            Website
Accredited in         Expertise in business  http://www.aicpa.org
Business Valuation    valuation
(ABV)

Certified Financial   Expertise in           http://www.
Analyst (CFA)         financial reporting    cfainstitute.org
                      and analysis,
                      investment valuation,
                      economics, and
                      portfolio management

Certified Fraud       Expertise in fraud     http://www.acfe.com
Examiner (CFE)        prevention and
                      detection, fraud
                      investigation,
                      financial
                      transactions, and the
                      legal elements of
                      fraud

Certified in          Expertise in forensic  http://www.aicpa.org
Financial Forensics   knowledge, including
(CFF)                 dispute resolution,
                      evidence gathering,
                      bankruptcy, fraud
                      prevention, and
                      valuation

Certified Management  Expertise in           http://www.imanet.
Accountant (CMA)      financial planning     org
                      and control,
                      managerial decision
                      making, and risk
                      management

Certified Public      Expertise in           http://www.aicpa.org
Accountant (CPA)      financial accounting
                      and reporting,
                      taxation, business
                      law, auditing and
                      attestation, and
                      general business
                      concepts

Certified Valuation   Expertise in           http://www.nacva.com
Analyst (CVA)         quantitative and
                      qualitative valuation
                      analysis, valuation
                      approaches, and asset
                      pricing models


Prior Work Experience

Relevant work experience, including prior testimonies and publications, is another important factor to consider when evaluating an expert witness's qualifications. This work experience should clearly demonstrate an expert's ability to perform investigative and analytical procedures, as well as applicable expertise in the field that is relevant to the matters under dispute. If an individual has prior experience as an expert witness, it is important to consider whether a consistent pattern can be observed in the expert's judgment--that is, given similar sets of facts and circumstances, an expert should consistently mach the same conclusions.

Communication Skills

Because trials are often adjudicated by a jury composed of individuals with little financial expertise, a potential expert witness should possesses the communication skills necessary to present difficult and complex issues in a manner that can be easily understood by laypersons. For example, the expert should be able to use examples and "what if' scenarios in order to apply advanced financial concepts within a context that will be more familiar to a juror.

Potential witnesses are likely to be cross-examined when providing testimony, and such questioning can often be heated and aggressive. During this stage, an expert witness must remain assertive, while avoiding an emotional response. An expert should answer only what is asked and what is within the scope of the opinion rendered. It is important for experts to avoid losing their temper at this stage, because doing so is likely to be perceived unfavorably by jurors, regardless of the validity of the response.

Impartiality

Although financial expert witnesses are typically hired to represent an individual party involved in litigation, it is important that a witness understands the need to remain unbiased when evaluating evidence and providing testimony. An expert witness must be perceived as capable of reaching an impartial conclusion, regardless of the side represented. A witness who is perceived as an advocate for the client's case, rather than an unbiased expert, will lose credibility in the eyes of the judge or jury, which might ultimately have a negative impact on the outcome of the case.

Effective Preparation Skills

In light of the many complex details and issues involved in the litigation process, an expert witness must have a systematic process of preparation in place to ensure that all of the important elements of the case are covered. When considering an expert witness, a potential client should ask questions to understand the process that the individual uses to prepare for trial or deposition. At minimum, the expert witness' preparation process should include reviewing the applicable depositions and court filings, relevant financial documentation (such as financial statements), and any related legal and regulatory standards.

Those engaged to provide courtroom testimony should have a preparation process to anticipate the questions that will be asked on the stand by opposing counsel. This should include performing supplemental financial calculations for any anticipated questions, especially those that might have been unanswerable during depositions or discovery. In addition, expert witnesses should have statements prepared to address any past mistakes or difficult issues that might arise when providing an opinion.

Personal Background

Opposing counsel will invariably research the personal background of any expert witness in the hopes of discovering information that could potentially destroy the credibility of the individual--the proverbial skeletons in one's closet. As a result, experts should disclose any personal information that could diminish their effectiveness as a potential witless. Early disclosure allows a litigation team to develop a response to any challenges to the witnesses' credibility and will help to prevent an embarrassing incident from occurring on the witness stand. Furthermore, a review of the potential witness's prior opinions and publications should be performed to ensure that such information does not conflict with the witness's current opinion.

Ability to Justify an Opinion

The major output of the expert witness service is the expert's opinion pertaining to the relevant issues of the case. Experts should be prepared to justify their opinions and should be able to explain the process used to arrive at that opinion. To justify an opinion, the expert should provide support for the facts and assumptions underlying the opinion.

Once an expert has formed an opinion pertaining to the relevant issues in a case, a report must be issued. This report should not assume that the reader understands complex financial issues and concepts; instead, it should be written in a style that favors an interested but uninformed person. It should also be checked for mathematical errors, misspellings, and inconsistent use of financial terms; such mistakes might negatively affect the expert's perceived competence. A minimum set of factors that should be addressed within an expert opinion report is presented in Exhibit 2.

RELATED ARTICLE: EXHIBIT 2

Factors that Should Be Addressed in an Expert Opinion

Factors:

* A summary of the expert's experience and training and its relevance to the case

* The facts that caused the litigation to occur

* The scope of the expert's assignment

* The sufficiency of relevant facts and data used in arriving at the opinion

* A demonstration that the theory or technique relied upon has been or can be tested

* A demonstration that the theory or technique relied upon has been subjected to peer review and publication

* The known or potential error rate for the theory or technique used

* The acceptability of tile theory or technique used ill the relevant scientific community

* The relevance of the theory or technique to the case at hand

* The basis for the opinion formed, including documents reviewed and relied upon

* A discussion of any authoritative literature that supports the opinion

* A statement indicating that the expert's opinion may change if additional facts become known or available

* The expert's compensation for providing an opinion

* The expert's signature

A Checklist of Qualifications

Given the increasing role of the financial expert witness in the resolution of complex litigation, it is critically important to understand the characteristics that a qualified witness must possess. Exhibit 3 provides a practical checklist of the key factors that should be present when evaluating the competencies of such an individual. Although the checklist is not all-inclusive, it can be used as a general reference by those tasked with retaining a financial expert witness or by CPAs seeking to expand their practice into the area of litigation support.
EXHIBIT 3

Checklist to Evaluate Competence of a Financial Expert in
Litigation Support

Competencies                                     Yes    No
Does the expert have the relevant academic
education (knowledge)?

Is the quality  of the expert's academic
education (knowledge) acceptable?

Does the expert have the relevant professional
certifications to speak to the issues involved
in the case?

Does the expert possess meaningful experience
relevant to the case?

Is the witness's background free from
information that might prove controversial or
incriminating?

Does the expert have experience with litigation?

Is the expert aware of the pitfalls in the
litigation process?

Can the expert demonstrate an ability to gather
and focus on meaningful and relevant details?

Does the expert possess or have access to
advanced computer skills?

Does the expert have a systematic process in
place for effectively preparing for trial and
for keeping up with the facts and documents in
a case?

Does the expert know the rules of admissibility
of expert testimony?

Does the expert possess the ability to teach,
communicate, and handle cross-examination?

Does the expert possess a temperament appropriate
for testimony?

Are sample reports from the expert's prior cases
understandable?

Do the sample reports have a well-laid-out
methodology for presentation?

Is the expert truly independent with regard to
this case?

Can the expert be expected to make impartial
judgments?


RELATED ARTICLE: COMMON EXPERT WITNESS TERMINOLOGY

* Dauber v. Merrell Dow Pharmaceuticals--Decided the standards used to govern expert witness testimony and established the judge as "gatekeeper" for determining the admissibility of such testimony. The principles established in Dauber are now incorporated in Rule 702 of the Federal Rules of Evidence.

* Rule 26 of the Federal Rules of Civil Procedure--States that the expert witness must provide the court with a written report discussing the facts and opinions to be provided. The report must also describe the witness's qualifications (including prior publications), prior expert witness testimony, and compensation.

* Rule 702 of the Federal Rules of Evidence--States the qualifications necessary for an expert witness to testy in U.S. federal courts. In summary, the rule states that 1) the individual's expertise must aid the court in understanding the issue, 2) the testimony must be based on facts, 3) the testimony must be the product of reliable methods, and 4) the expert must have reliably applied the methods to the facts of the case.

* Voir dire--A French phrase ("to speak the truth") that relates to the review process used by attorneys to determine the qualifications of both 1) potential jurors, and 2) potential expert witnesses. A voir dire examination of an expert witness typically involves questioning by both the attorney proposing the use of the expert's testimony, as well as the opposing attorney. The information presented in this article, particularly in Exhibit 3, may be used as a guide in preparing for a voir dire examination.

Lookman Buky Folami, PhD, CPA, CMA, CFM, is an associate professor in the college of business at Bryant University, Smithfield, R.I. Michael E. Mason, CPA/ABV/CFF, CFE, is principal at Forensic CPAs LLC, Birmingham, Ala. Stephen Perreault, PhD, CPA, is an assistant professor in the college of business at Providence College, Providence, la
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Title Annotation:litigation support
Author:Folami, Loolcman Buky; Mason, Michael E.; Perreault, Stephen
Publication:The CPA Journal
Geographic Code:1USA
Date:Nov 1, 2013
Words:2091
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