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Opportunities in litigation services.

It's a broad field open to CPAs with a wide variety of skills.

Why are more and more CPAs getting involved in litigation services? Ten years ago, only a small minority of CPAs worked in this practice area. Today, many CPAs provide litigation services, and many others are looking seriously at adding this service to their practices. The reason is simply that more CPAs recognize they have valuable skills they can use to assist attorneys in virtually every phase that's involved in the litigation process.

Litigation is big business in America. Just as society is becoming more complex, so too are the issues lawyers need to understand in litigation. Many litigators turn to CPAs to help them with the accounting and economic issues that frequently arise when people sue each other. In addition, as CPAs' individual and business clients more often become parties to lawsuits, it is normal to expect them to seek either their own CPAs or others to assist them in the complicated business issues in their disputes.

This article explains the types of cases that often require CPAs' services, the range of services CPAs usually provide and how to set up a litigation practice as well as some practice economics. The examples are not exhaustive but merely highlight some of the more common opportunities to provide litigation services.


Divorce cases often are a CPA's introduction to the litigation services field because a client going through a divorce asks the CPA to help. The experience may not be pleasant for the CPA new to litigation because divorces are probably the most emotional type of litigation. Very few parties ever believe they win in a marital dissolution. Therefore, many aren't happy with the process or any of the professionals who assist them in the case.

What kind of work can CPAs expect to perform in divorce cases? Marital dissolution is almost more of an accounting exercise than a legal exercise (except for child custody issues). CPAs can expect to prepare financial statements for the marital estate and possibly for one spouse's separate estate. (Remember that even if both partners were clients as a couple, the CPA may work for only one spouse).

Depending on the state in which the case takes place, it often is necessary to trace the source of many purchases to determine whether they were made using separate or marital property. Another frequent assignment is to determine the parties' standard of living by scheduling their monthly expenses. This provides the judge with information to award spousal or child support.

If there is ever a suspicion that one spouse is wasting marital assets after separation, the CPA may be asked to trace the source of various payments and explain expenditures. Although an expenditure may have been made from a separate checking account, the funds themselves originally may have come from income earned during the marriage. The findings may be used to prove that common marital assets are being spent for the separate benefit of one spouse instead of used by each.

Frequently, the CPA is asked to value certain marital estate assets. The asset CPAs most often value is a privately held business interest owned by one or both spouses. Finally, the CPA often is asked to determine the tax consequences of asset distributions and the tax effects of various scenarios for splitting the marital estate.


This is the most common litigation engagement for CPAs. Most companies file lawsuits to right a wrong that has caused them some commercial damage. To make its case, a company must prove it suffered damages and be able to calculate its loss. CPAs' training and experience enable them to render expert opinions on whether a defendant's alleged actions caused the plaintiff to sustain damages and to estimate the damages that occurred.

The CPA may be retained by lawyers for the plaintiff or the defendant. The CPA's role in the engagement varies depending on who employs him or her. CPAs working for the plaintiff's lawyer must create a damage model. They must estimate the financial results for the plaintiff if the defendant had not violated the plaintiff's legal right. This often requires development of a number of assumptions and a projection based on those assumptions.

CPAs hired by the defendant may be asked to review and critique the damage model prepared by the plaintiff's expert. If they disagree with the assumptions or methodology used by the plaintiff's expert, they may be asked to testify about their criticisms and present their idea of a more reasonable damage calculation.

CPAs are hired as consultants to the attorneys or testifying experts on either side.


Unfortunately, the complexity of the transactions with which CPAs deal and the litigious nature of our society have greatly increased the amount of litigation against practitioners. In most cases against accountants, both sides must hire accountants to explain the relevant professional standards to the trier of fact and to discuss whether any standards have been violated. The most publicized cases involve audit failures of large publicly traded companies.

However, there are cases touching on every service CPAs offer. These include tax advice, management consulting services, compilations, reviews, personal financial planning and litigation services. Those who specialize in any of these practice areas have the experience to be expert witnesses on these issues.


The current wave of bankruptcies is the result of many factors, including the recession and the leveraged buyouts of the last decade. Many CPAs get their first exposure to this practice area when a client files for bankruptcy and asks the practitioner to help develop a plan to emerge successfully. The CPA also may be asked to prepare the financial schedules that must be filed monthly with the court.

CPAs can work for one of many different parties in a bankruptcy, however, including the debtor, the secured creditors, the unsecured creditors, the trustee or the receiver, if one is appointed. The CPA's role in the engagement will vary depending on who has retained him or her. The CPA might, for example, prepare a plan for reorganization, critique the offered plan or develop alternatives. The number of adverse parties in a large bankruptcy requires a number of CPAs to assist in the financial details of the bankruptcy process.


This assignment relies on many of the skills possessed by auditors. It requires the ability to understand complex transactions, knowledge of the information necessary to support the transaction and the ability to trace through it from beginning to end.

This work is performed in many types of cases. It is commonly used in bankruptcies to prove fraudulent conveyances or preference payments made just before the filing. Proving criminal activity often requires accountants to construct a financial trail through myriad organizational structures and complicated transactions designed to disguise an activity's true purpose. In a different sort of case, establishing that a spouse is wasting marital assets also requires the skills described above. A vast amount of the Resolution Trust Corp.'s work includes investigatory accounting to determine where funds went, which assets were purchased and what their current values are.


CPAs are sometimes asked to address damages surrounding tax matters. A typical case might involve a plaintiff suing for legal or accounting malpractice stemming from alleged errors in estate planning or tax return preparation. The CPA's task is to determine the appropriate tax treatment and quantify the difference between what taxes would have been paid and what taxes actually were paid. Additional opportunities for CPAs in tax-related litigation include defense work in tax fraud cases and in disputes with the Internal Revenue Service in transfer pricing of goods between controlled entities.


The best way for CPAs to get started in litigation services is to inform local attorneys of their interest in assisting with business issues in their cases. Unfortunately, there is no quick way to do this. Before lawyers will hire a CPA as an expert witness, they will want to spend some time with him or her. They will want to know how the accountant answers tough questions and how fast he or she thinks. They also will want to test the CPA's intelligence. They will seek to learn about the CPA's personality and also to observe how articulate he or she is.

This is best accomplished in very small groups or one on one. We have found that breakfasts, lunches or dinners are very good forums that allow the lawyer and the CPA to get comfortable with each other. At these meetings, the lawyer sizes up the CPA as a potential witness, looking for qualities such as believability, likeability, reasonableness and the ability to describe complex subjects in an understandable manner. These are the traits of a good expert witness. If a CPA possesses them, lawyers will recognize it and assignments will begin to come in.

CPAs with no testimony experience still have much to offer a potential client. There are many lawyers who want to hire experts who have never testified before because they don't have to worry about prior testimony being used to impeach a witness. Opposing attorneys often research past testimony given or even articles written by expert witnesses to see if they have previously advocated a position that contradicts or in any other way compromises the stance they are taking in a given case.

CPAs just starting litigation services practices should seek cases that deal with industries or issues in which they have a lot of prior experience. For example, an auditor who has dealt extensively with savings and loans should focus his or her marketing efforts on lawyers who have cases dealing with failed or failing thrifts. CPAs who have provided services to a number of biotechnology clients should follow articles in the business press on litigation between companies in this industry to discern the parties and issues involved. CPAs also should let their clients know of the services they offer. It can be helpful to join the state CPA society's litigation committee, if one exists.


Those interested in pursuing this practice area should be aware that it is very difficult to schedule this work and to balance it with recurring client commitments. Numerous scheduling problems occur between the sets of lawyers, their clients and the judge. Also, cases often are delayed or accelerated because of unexpected developments. Therefore, it is very difficult to predict workload, let alone when a call will come to give a deposition or testify at trial. At the same time, CPAs often are hired to work on cases that suddenly settle, leaving them without an engagement. CPAs who don't overcommit often end up without enough work to do. However, those who do overcommit may find themselves overwhelmed with work and scheduling conflicts.

Another characteristic of litigation services is the low leverage of professional staff to partner in most cases. This work requires the active involvement of the testifying expert during all phases of the assignment. When the engagement leads to testimony at trial or deposition, the opinions given must be those of the witness and not the staff working on the job. It is a mistake for the testifying expert to delegate too much of the work because he or she then may not have the complete, firsthand knowledge necessary to be believable.

These practice limitations are compensated in part by the fact that these often are truly value-added services. The client needs a CPA's professional judgment and opinion and is willing to pay accordingly. Practitioners also get immediate feedback on the quality and persuasiveness of their work. If the case goes through trial, a judge or jury will evaluate and either agree or disagree with the CPA's opinion. This immediate feedback can be rewarding, particularly since it is often missing in many CPA practice areas.


Litigation services is one of the fastest growing CPA practice areas. To learn more about it, interested practitioners should consider attending related continuing professional education courses as well as conferences on the subject offered by the state CPA societies and the American Institute of CPAs. Guidance on this practice area is offered in the Institute's statements on standards for consulting services.

The work requires flexibility in scheduling and the ability to persuade a neutral fact finder in favor of one's opinion. Once an opinion is delivered in a courtroom or deposition, the opposing party may attack the CPA's credentials, expertise or any perceived weaknesses or inconsistencies in the work. Although this sounds challenging or perhaps unappealing, it should not deter qualified, confident CPAs. Those who make reasonable assumptions and thoroughly consider their opinions should find this an interesting and lucrative niche.
COPYRIGHT 1992 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:for CPA'
Author:MacFarlane, Bruce L.
Publication:Journal of Accountancy
Date:Jun 1, 1992
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