by Michael Costello, CPA
posted January 17, 2004
 Mike Costello |
Let’s face it, selecting an expert witness is among the most important strategic decisions attorneys make. In cases that require the expert opinion of a valuation professional, it is crucial to make him or her part of the team from the onset of the case. Involved early, your CPA/expert can compile a list of documents needed to prepare detailed analysis. Attorneys may overlook important financial documents during a case discovery stage. This forces your expert witness, the valuation professional, to make educated assumptions based on insufficient information that may or may not be correct.
In addition to helping you with discovery and interrogatories, a valuation expert can help you devise a timeline for the case, based on his or her expected time to complete the valuation. This is crucial when determining the cost of the suit to the client. Often clients are shocked at how much it costs to hire an outside expert. The sooner your business appraiser quotes you a price, the sooner you’ll know whether the client is willing to hire the expert. If your client is unwilling to incur this expense, you may have to revise your strategy. Further, by involving you valuation professional early, you can make a preliminary assessment of the client’s economic position and decide whether pursuing the claim really makes sense.
Maintain Your Valuation Expert’s Involvement
As you are awaiting trial, the valuation expert role is still important. Often times, he or she acts as an unbiased consultant during discussions with the opposition. For instance, many CPA/experts serve as level headed analysts during heated settlement talks between divorcing spouses. Their lack of emotional involvement with the parties helps keep the discussion focused on the case’s financial aspects and the equitable distribution of the marital estate. In the role of consultant/analyst, valuation experts can sometimes help attorneys settle cases before going to court, thus avoiding the time and expense of trial.
Valuation professionals may also help attorneys prepare for depositions and trial. In addition to clarifying his or her own financial analysis, your CPA/expert can also critique the opposing expert’s report—either formally in a rebuttal report or informally in a verbal discussion or a memo format. Your expert’s critique will expose the other side’s technical flaws and can be used to draw up deposition and trial questions.
Sniffing Out the Opposition’s Weak Points
“So in war, the way is to avoid what is strong and to strike at what is weak.”
- Sun Tzu “The Art of War”
Lawsuits are battles; they are strategically planned and always end up with the same result – a winner and a loser. Your valuation professional can help you end up on the winning side with a careful review of the opposing expert’s deposition transcript before trial. Such a review may point out weaknesses or inconsistencies with the expert’s written report.
Another valuable piece of information from the opposition is their expert’s work paper file. Time and money permitting, ask your valuation expert to inspect the other expert’s files to uncover documents reviewed, assumptions made and other underlying details of the CPA/expert’s work. This step can be especially fruitful if the report is brief, vague or hard to follow.
Respect Your Valuation Professional’s Independence
Before asking your expert to provide these nontraditional services, one final word of advice: Don’t unintentionally sacrifice your CPA/expert’s independence. Judges draw a fine line between advocacy and independence. If consulting services are overused, the judge may deem your expert an advocate rather than an independent outsider. You may want to consider engaging two valuation professionals: one as an expert witness, and another as a consultant.
Local Valuation Experts
In two recent cases that captured local media attention, we helped local attorneys obtain significant settlements for their clients. If you’re looking for an expert who can provide you with value-added services beyond the standard valuation report or expert testimony, we can help. Costello Forensic Accounting experts work with local attorneys on a regular basis to assist in the preparation and execution of lawsuits in Chattanooga. Our staff knows how to give you, and your client, your money’s worth, without overstepping ethical boundaries.
Case Examples
In one case, we assisted in preparing calculations of the lost future income for an employee who had been wrongfully discharged. We determined future income based upon past historical earnings and benefits until retirement. Then we subtracted what the employee expects to make in salary and benefits until retirement in a new, lower-paying position. After discounting these future cash flows to net present value, we were able to account for the time value of money. In other words, we determined the amount of money it would take now, invested at a reasonable rate of interest, to provide the dollar amount of wages and benefits lost by the employee. Our services assisted the attorney in partially settling this case.
In another case, an individual was charged with failure to pay indebtedness to another individual. The dollar amount claimed was substantial. We simply calculated the interest on the debt at the highest rate allowed by the State of Tennessee, and determined that the individual had not only paid the debt in full, but was due a refund for overpayment. The judge’s opinion was in favor of the defendant in this case. Our accounting of the transactions from the records provided by the individual parties to the lawsuit resulted in a win for the attorney, and more importantly, for his client.
(D. Michael Costello is a Certified Public Accountant, business appraiser and consultant with more than 15 years of training and experience in business valuations and appraisals, business acquisitions and divestitures, and related fields.
He has written several articles for the Tennessee CPA and the AICPA’s Management Consultant newsletter.
He was the Managing Director and President of Costello, Strain & Company, PC, a CPA firm he established in May 1984. The firm was merged with Joseph Decosimo and Company, LLP, CPA’s in September 2003. Joseph Decosimo and Company, LLP was founded in 1972 and today is one of the top 100 CPA firms in the nation.)
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