Max was an experienced tax accountant. He had a small CPA firm whose members included him, a receptionist and two staff accountants. Max decided that he wanted to branch out into litigation support services. Before he did, he took courses on how to value a business and eventually got his Accredited in Business Valuation (ABV) certification from the American Institute of CPAs. Max wanted to get involved in divorce business valuations and wanted to be retained by family law attorneys and their clients as a testifying expert.
Max sent emails to several law firms announcing his desire to be retained as a testifying expert in family law cases. He eventually received a call from an attorney who asked Max if he could value an auto repair business that was owned by his client (“Wife”) and her spouse (“Husband”), who also ran the business. The valuation was needed for property settlement purposes between the divorcing couple. This meant that Max had to determine the value of a 50% interest in the auto repair business – the 50% interest to be “sold” by Wife to Husband.
Max was eager to do a good job with the valuation. He was also eager to please the attorney who referred him in the case so that he would be assured of getting future business through the attorney. When Max met with Wife, she expressed to Max that it was most important to her that Max come up with the highest valuation of her 50% interest in the business that he could. Max told her that he would lean in her direction in any way he could when he was doing his work.
While it is perfectly appropriate for an attorney to be an advocate for his or her client, a CPA who testifies as an expert cannot be an advocate. For example, in an economic damages case, the CPA expert can only be an advocate for his calculated damages opinions. The CPA cannot take sides. The CPA must arrive at a damage calculation that is fair to both sides in the case.1
The same is true for Max in his business valuation of Wife’s 50% interest. He cannot purposefully make his valuation “lean” in favor of Wife when this approach is clearly not equitable to Husband. Max must prepare a valuation report that is helpful to the trier-of-fact. The judge will be attempting to determine what an appropriate value of the 50% interest in the auto repair business should be. The judge will likely agree or disagree with Max’s valuation depending on whether it has been prepared in a manner that is reasonable and equitable to the positions of the parties.
If a CPA is hired to advise an attorney, or the attorney’s client, in a litigation matter – say on financial issues – and is retained only as a consultant, and will not be testifying as an expert, the CPA consultant can be an advocate for his client.2 The files of a CPA expert witness used to prepare a report, or support his or her opinions at trial, are generally subject to review by the opposing party and their counsel. This discovery includes emails and notes in the expert’s files. A CPA retained as a consultant generally would not have to produce their files to the opposing party or the party’s counsel since the consultant will not be subject to cross examination on the witness stand.
Some attorneys will initially designate the CPA who has been retained on the case as a “consultant.” If the case looks like it is going to proceed to trial, the consulting CPA may now be designated an “expert” who is expected to testify in the case. At that point, the CPA’s files are now subject to discovery and review by the opposing party and their attorney. A danger with this type of arrangement can exist if, once the CPA changes from consultant to expert, the CPA has indications in his or her file that they were clearly advocates for their client’s position in their consulting role. It may be difficult to overcome this perception once the CPA is named a testifying expert.
Donald R. Bays, CPA, ABV, CVA, CFF
- Once the practitioner is named as an expert witness, the practitioner needs to understand that he or she must be independent as a fact finder for the court and is not an advocate for his or her party as he or she may have been if he or she were initially retained as a consultant. -p. 30, Practice Aid 10-1, Serving as an Expert Witness or Consultant; published by the American Institute of Certified Public Accountants, 2010.
- ibid., p. 30.