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Financial damage experts are asked to provide expert opinion and analysis in a wide variety of dispute matters. Expert witnesses are necessitated by the need to provide relevant and reliable information to the trier-of-fact that is beyond the knowledge of a layperson. While they may serve as court-appointed experts, in most matters either side of a dispute hires them. Nonetheless, they are required to perform their services independently. Case law ( Daubert, Kumho Tire, Frey), the Federal Rules of Evidence and local court rules dictate some framework for how these services are to be provided. Financial damage experts also come from various disciplines. Generally, they consider themselves to be accountants, valuation experts or economists who specialize in quantifying economic damages. Because the financial expert witness population is comprised of individuals with various disciplines, they are not only guided professionally by laws and procedures of the court, but also by their own discipline’s rules of professional conduct. Knowing those rules can help you assess the work of the financial experts in a matter. The Accountant Accountants are often called as expert witnesses in commercial disputes. Accountants may hold a certified public accountant (CPA) designation or may work for AICPA member firms that require adherence to the American Institute of Certified Professional Accountants (AICPA) Code of Professional Conduct. Those professional responsibilities apply to all professional services performed by anyone holding themselves out to be a CPA, including services related to providing expert witness and related litigation support services. Accountants recognize that a distinguishing mark of their profession is their responsibility to the collective well-being of the community of people and institutions the profession serves. In performing litigation-related services, they must act with integrity, objectivity, due professional care and a genuine interest in serving the public. They are expected to provide quality services that demonstrate a level of professionalism. A requirement of objectivity is inherent in all expert witness work. The AICPA expressly recognizes that the principle of objectivity imposes the obligation for their members to be impartial, intellectually honest and free of conflicts of interests. Rule 101 of the AICPA Code of Professional Conflict recognizes that independence precludes relationships that do or may appear to impair a member’s objectivity, and that expert witness services create the appearance that a member is advocating or promoting a party’s position. Recent changes to this rule have resulted in the following wording: “Expert witness services create the appearance that a member is advocating or promoting a client’s position. Accordingly, if a member conditionally or unconditionally agrees to provide expert witness testimony for a client, independence would be considered to be impaired.” “Client” is defined in Section 90 of the AICPA Code of Professional Conduct as “any person or entity, other than the member’s employer, that engages a member or a member’s firm to perform professional services or a person or entity with respect to which professional services are performed.” “Professional services” are defined in the same section to include all services performed by a member while holding out as a CPA. Based on these definitions, an argument can be made that the AICPA has inadvertently created a show-stopper related to the performance of expert witness services by CPAs. Whether the law firm or the party to the dispute is considered to be the client, the member would be performing services for clients considered to impair their independence for which they are precluded from performing. Up until the passing of the Sarbanes-Oxley Act of 2002, CPAs often performed expert witness services for their attestation clients, including their public audit clients. Some CPAs even accepted fees and participated as expert witnesses against their firm’s public audit clients. Congress recognized the inherent conflicts in these situations and through legislation has now precluded CPAs from serving as expert witnesses for their public audit clients. The international accounting firms, as well as many local and national firms, have generally taken the same position for non-audit clients in the past few years as more and more scrutiny to these issues has surfaced. The Valuation Professional Valuation professionals are also often asked to serve as expert witnesses. Individuals who perform valuation-related work usually belong to one of several national professional associations that prescribe to similar professional codes of conduct related to litigation-related services within their discipline. The following are excerpts from the American Society of Appraisers’ Code of Professional Conduct specifically relevant to expert testimony: 4.3 Appraiser’s Obligation Relative to Giving Testimony. “When an appraiser is engaged by one of the parties in a controversy, it is unethical for the appraiser to suppress any facts, data, or opinions that are adverse to the case his client is trying to establish; or to overemphasize any facts, data, or opinions that are favorable to his client’s case; or in any other particulars to become an advocate. It is the appraiser’s obligation to present the data, analysis, and value without bias, regardless of the effect of such unbiased presentation on his client’s case.” (Also, see Section 7.5.) This code creates a proactive obligation for the valuation professional to present all relevant facts discovered whether or not the fact is consistent with the ultimate opinion of the expert. 4.4 Appraiser’s Obligation to Document Appraisal Testimony. “When a member accepts employment to make an appraisal, or to testify as to value of property before a court of law or other judicial or quasi-judicial forums, the appraiser shall, before testifying, complete an adequate written appraisal report, or have complete documentation and substantiation available in his files.” 7.1 Contingent Fees. “If an appraiser were to accept an engagement for which the amount of his compensation is contingent upon the amount of an award in a property settlement or a court action where his services are employed; or is contingent upon the amount of a tax reduction obtained by a client where his services are used; or is contingent upon the consummation of the sale or financing of a property in connection with which his services are utilized or is contingent upon his reaching any finding or conclusion specified by his client; then, anyone considering using the results of the appraiser’s undertaking might well suspect that these results were biased and self-serving and therefore, invalid. Such suspicion would militate against the establishment and maintenance of trust and confidence in the results of appraisal work, generally; therefore the Society declares that the contracting for or acceptance of any such contingent fee is unethical and unprofessional.” 7.5 Advocacy. “If an appraiser, in the writing of a report or in giving an exposition of it before third parties or in giving testimony in a court action suppresses or minimizes any facts, data, or opinions which, if fully stated, might militate against the accomplishment of his client’s objective or, if he adds any irrelevant data or unwarranted favorable opinions or places an improper emphasis on any relevant facts for the purpose of aiding his client in accomplishing his objective, he is, in the opinion of the Society, an advocate. Advocacy, as here described, affects adversely the establishment and maintenance of trust and confidence in the results of professional appraisal practice and the Society declares that it is unethical and unprofessional.” (Also, see Section 4.3). The Economist Many expert witnesses who are economists are affiliated with a college or university that has its own professional code of conduct. Thus, it may be helpful to secure and review that information to determine if the economist is performing in a manner consistent with that code. A number of other economic professional associations also have a professional code. The National Association of Forensic Economists has a Code of Ethics that specifically addresses the litigation environment. The following are a few of the more relevant items: Engagement. Practitioners of forensic economics should decline involvement in any litigation win that they are asked to assume invalid representations of fact or alter their methodologies without foundation or compelling analytical reason. Compensation. Practitioners should not accept contingency-fee arrangements or fee amounts associated with the size of a court award or out-of-court settlement. Diligence. Practitioners should employ generally accepted and/or theoretically sound economic methodologies based on reliable economic data. They should attempt to provide accurate, fair and reasonable expert opinions, recognizing that it is not the responsibility of the practitioner to verify the accuracy or completeness of the case-specific information that has been provided. Professional codes of conduct provide principles for how a litigation expert witness assignment should be approached professionally. Whether the financial expert witness comes from the field of accounting, valuation, or economics, the professional conduct of the individual is guided not only by the rules of the court but also by codes of conduct specific to their respective discipline. WILLIAM E. HARRIS is a shareholder in Forensic Damages. Harris has 18 years of experience and has taught economic damagerelated issues locally, nationally and internationally. He works in his Philadelphia and Haddonfield, N.J., offices and can be reached at [email protected].

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