Litigation/Expert Witness FAQ’s
- What is forensic accounting?
- What services can an accountant provide in a potential legal matter?
- What is the role of the accountant as consultant?
- What is the role of the accountant as expert witness?
- Why would anyone need an accountant as an expert witness?
Q: What is forensic accounting?
A: The term forensic is defined as relating to, or dealing with the application of scientific knowledge to legal problems; or suitable for use in courts of law or public debate. Forensic accounting is the process of using specialized accounting knowledge to collect, analyze, and evaluate accounting, financial records, and other evidentiary documents to interpret and communicate findings in a courtroom, mediation, arbitration, boardroom, or other administrative venue.
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Q: What services can an accountant provide in a potential legal matter?
A: An accountant can serve as a consultant or an expert witness in areas of litigation such as bankruptcy, business disputes, fraud, and general civil litigation.
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Q: What is the role of the accountant as consultant?
A: Consultant services can be sought in connection to a legal dispute or for other general business issues. A consultant advises about facts, issues, strategies, and any other matters that may arise in a particular circumstance. Generally in complex legal matters relating to accounting, attorneys consult with an accountant to help in numerous ways, such as: interpreting discovered financial documents, and reconstructing financial records to unearth insolvency or fraud.
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Q: What is the role of the accountant as expert witness?
A: To render an opinion before a trier of fact on issues such as valuation, insolvency, damages and lost profits calculations.
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Q: Why would anyone need an accountant as an expert witness?
A: In resolving legal disputes before a court of law there are many causes of action requiring the testimony of an expert in resolving the legal matter. For instance, in proving insolvency in bankruptcy, many times the testimony of an expert is necessary to resolve the closely related factual issue of valuation. An accountant can render an opinion based on the application of his or her knowledge and expertise in determining the debtor’s valuation.
What are the qualifications an accountant must possess to serve as an expert witness?
In federal court, an expert must meet the qualification standards as set down by the Federal Rules of Evidence and further delineated by the United States Supreme Court in Daubert v. Merrell Dow Pharm., Inc. Generally, the expert’s opinion must be relevant to the legal matter at issue, assist the trier of fact in understanding the evidence or determining the factual issues, and be based upon a reliable method of determining such information.
In state court, qualifying an expert witness may vary depending upon state. The Texas Supreme Court has adopted the reliability and relevancy requirements for determining the admissibility of scientific expert testimony the United State’s Supreme Court applied in the Daubert case. However, instead of adopting the four factors listed in the Daubert case, the Texas Supreme Court supplied a list of six non-exclusive factors:
- the extent to which the theory has been or can be tested;
- the extent to which the technique relies upon the subjective interpretation of the expert;
- whether the theory has been subjected to peer review and/or publication;
- the technique’s potential rate of error;
- whether the underlying theory or technique has been generally accepted as valid by the relevant scientific community; and
- the non-judicial uses that have been made of the theory or technique.
Once a judge determines that the evidence submitted is relevant and reliable, a balancing test must be conducted to determine whether to exclude the evidence because its probative value is outweighed by a number of concerns including unfair prejudice, confusion of the issues, or misleading the jury.
Outside of scientific expert testimony and the application of the above factors, the requirements of reliability and relevance must still be satisfied before any expert is permitted to testify. The Texas Supreme Court has held that the test in such cases is whether “there is simply too great an analytical gap between the data and the opinion proffered.” The main focus of the court is whether the analysis used by the expert to reach his or her conclusions is reliable.
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