How Attorneys Can Effectively Utilize a CPA in Litigation

The right expert selected to compute economic damages is a critical ingredient to help an attorney’s case involving economic damages. As CPAs, we are asked to provide independent, objective opinions and/or consult on issues in a case.

What CPAs do in litigation:

CPAs analyze financial information and other relevant data. These analyses are used to develop conclusions about the issues and form the basis to independently calculate economic damages that are defensible in a court of law or other forum.

We are hired in a variety of disputes and investigations:

  • Breach of contract
  • Breach of representation
  • Shareholder dispute
  • Insurance loss claims, especially those involving business profits
  • Franchise and distributor disputes
  • Intellectual property disputes (including patent, trademark and trade secrets)
  • Lender liability
  • Bankruptcy dispute and court appointed investigators
  • Trust and estate disputes
  • Marital dissolutions
  • Employee dishonesty or fraudulent financial statements
  • Accountants failure to detect fraud
  • Employment disputes

We perform a variety of tasks, including ones not solely related to the analysis of financial statements:

  • Developing deposition questions
  • Reviewing correspondence/non-financial information
  • Assisting with document requests/interrogatory responses

FSS helps attorneys in many ways in anticipated litigation:

We provide the analyses that attorneys use in settlement discussions even prior to a lawsuit being filed. During an initial phase of litigation, we can assess facts and provide a preliminary estimate of damages, if they exist.

FSS serves attorneys in litigation:

We serve as an expert witness or a consultant. As an expert witness, we are an advocate for our opinion, not the attorney’s client. There are nuances to litigation services work, which is why it is critical to enlist the FSS team, comprised of individuals who understand the litigation process.

When FSS serves as a consultant, our role is usually never disclosed, so our work is not generally discoverable. A consultant’s role is similar to an attorney’s advisor.

Reasons FSS is hired as expert witnesses by attorneys:

  1. Credentialed professionals bring credibility to important cases.
  2. Economic damages analyses and forensic investigations involve complex financial issues, which FSS can explain in clear, understandable terms. With the aid of the most advanced technology, FSS can show a trier the facts of what happened and the cost of what happened.
  3. Employees of a party to the litigation are not independent. Also, they are likely not trained to testify nor know how to calculate damages to a reasonable degree of certainty.

When an attorney should hire FSS as an expert witness: 

As early as possible.

While cost is always a consideration, cost can be managed by taking the appropriate steps in close communication with our client, the attorney. FSS can manage fees through the following:

  • Budgets and workplans
  • Work performed in phases
  • Regular billing to avoid any surprises

Whether serving as expert witness or consultant, FSS adds great value to attorneys. Learn more about FSS litigation services here.



Lost Profits Damage Measures: More than just a Mathematical Calculation

The methodology of a lost profits calculation of damages in a breach of contract claim or intellectual property claim attempts to restore the injured party to their prior financial position. To prepare a calculation that is not viewed as speculative, evidence of loss must match the facts of the case and cannot be cherry-picked.

The calculation of lost profits is not straightforward.

An expert must consider all evidence in the record. An expert who blindly assumes all lost sales are attributable to the plaintiff, without considering other reasons the defendant could have made those sales (especially if evidence exists), is open to attack. Failure to consider sufficient relevant data (a term of art in the CPA’s standard of care) is a major reason why experts’ testimonies get excluded from cases.

We rely on the numbers and the story the numbers tell. We must use common sense and consider whether the damage methodology and assumptions align with the facts of the case. Critical questions to answer when computing lost profits damages include:

  • Is there reasonable basis for the assumptions made?
  • Has the expert considered all independent data and reconciled it with other evidence in the record?

Damages must be computed with reasonable certainty. The following steps are helpful.

  1. Determine what evidence is in the record and what is relevant for determining damages.The expert needs to be involved in the discovery process and ask for information needed. An attorney is helpful in identifying categories of documents. However, the expert must decide what is relevant for his or her analysis.There will be times when specific information is not available. In that case, the expert should determine if there is sufficient relevant data to determine damages with reasonable certainty.
  2. Use third-party, independent research to form the basis of opinions.This information can also be used to test the reasonableness of assumptions and data used.
  3. Step back and ask the questions:
  • Does this make sense?
  • Is this calculation logical?
  • Do I have sufficient, relevant data to support my opinions?
  • Have I considered other reasons that would cause the assumptions to fail; if so, have I reconciled it to the data?

Why could an expert’s opinion be excluded?

  1. The expert has failed to consider sufficient, relevant data in the record, or readily available.An expert witness who cherry picks data and ignores other data is open to challenges and likely to have the opinion excluded by the court. The expert witness should investigate and consider the evidence within the totality of the record.
  2. The expert has utilized methodology which is not accepted.The expert must demonstrate their methodology is reasonable and generally accepted in the professional community, and/or has been tested by other professionals.

Takeaway: No case is simple.

The calculation of damages based on a lost profits damage methodology is not straightforward. It is critical to find a professional who understands the pairing of the damage calculations with the evidence in the record and, more importantly, can tell the story.

Learn more about our litigation services here.