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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