Most jurisdictions require that a plaintiff establish allegations of accounting malpractice through expert testimony. Moreover, accounting experts are often relied upon to establish damages. Accordingly, the vast majority of litigators, even those outside of the malpractice community, will encounter a CPA expert witness. This may be daunting for attorneys. Fortunately, there’s a handy, but underutilized, guide. The special reports to the AICPA Code of Professional Conduct include ethical standards required of every CPA. The reports provide a ready-made guide for evaluating the efficacy and admissibility of a CPA expert’s testimony. Using these standards as a benchmark should help practitioners retain and oppose an accounting expert.
The AICPA Code of Professional Conduct is similar to the Rules of Professional Conduct governing attorneys. However, the AICPA Code also includes standards specifically addressed to financial experts. This includes the principle that the purpose of an expert is not to serve as an advocate for his client, but to assist the trier of fact in understanding complex concepts. There is also a standard of competence requiring that a CPA only agree to be an expert witness if he has the knowledge or skills to necessary to provide reliable testimony.
One of the most informative rules may be the requirement that practitioners obtain “sufficient relevant data” before rendering an opinion. This includes both information and data obtained in discovery, as well as any assumptions that are made in reaching the conclusions. Oftentimes the basis for excluding a CPA expert comes as a result of the theory of garbage in-garbage out. Some experts may attempt to use irrelevant or misleading data points as the basis for their testimony, such as overall sales numbers when only one subset is relevant, or using numbers from an outlier year as a basis for projecting all future numbers.
Faulty assumptions can also create problematic conclusions, like ignoring seasonal trends or other industry occurrences which would vastly change the outcome of the analysis. Any of these mistakes not only violate the AICPA rules, but also support exclusion of the opinion from trial.
The AICPA’s rules should be a starting point when utilizing or opposing a CPA expert. Even the most experienced attorneys can use these rules as a refresher or a checklist when evaluating an expert report. The code of conduct specifically governing expert testimony is a terrific resource for practitioners who would be well served to incorporate this resource into matter involving a CPA expert.