A Certified Public Accountant (CPA) financial expert can provide valuable assistance to attorneys throughout the discovery phase of a litigation case.
Cases involving economic damages often depend on documents to establish or disprove the amount of the plaintiff’s damages. A financial expert gathers, analyzes and evaluates information from documents to calculate damages, and to provide expert testimony opining as to the amount of damages.
When is the right time to hire your CPA expert? The answer is simple: sooner rather than later. Let’s consider why.
Requests for Production of Documents
Requests for production of documents are one of the primary means of obtaining the data and information the expert will need to calculate damages.
CPAs know the types of documents typically maintained by businesses and individuals, and the accounting lingo used to refer to certain documents so that the opposing party will understand what documents are to be produced. CPAs retained early in the case can assist the attorney in developing a more precise and effective request for production of documents to obtain key relevant documents.
Serving requests for production of documents early on in the case, rather than late in the game, carries several benefits.
- Obtaining relevant documents sooner provides the attorney and expert more time to review and analyze the data to evaluate its impact on damages and other aspects of the case.
- Documents are useful in preparing for depositions. Obtaining those documents early allows more time to develop specific questions.
- Information contained in documents may identify additional individuals that the attorney needs to depose and those depositions can be scheduled promptly.
- Based on review of the documents initially produced, you may identify additional documentation that needs to be requested.
The specific documents to be requested will vary based upon the facts and circumstances of each case. Some documents tend to be more reliable than others. The CPA can provide the attorney with information as to the typical reliability of certain documents.
Generally, financial documents should be requested for a period of three to five years prior to the event or act causing the damages and for all subsequent periods.
The financial documents typically needed include:
- Federal income tax returns, including all forms and schedules
- Payroll tax returns, federal and state (quarterly and annual)
- W-2 forms
- Sales tax returns
Financial Statements (Balance Sheets, Income Statements, Statements of Cash Flow)
- Prepared by external accountants (audited, reviewed or compiled)
- Internally prepared
- Forecasts and projections
- Personal net worth statements
- Detailed general ledgers (electronic copy if available)Sales reports – by month, customer and product
- Payroll registers and wage summaries
- Inventory reports
- Depreciation schedules
- Accounts receivable agings
- Accounts payable agings
- Shareholder/partner/operating agreements
- Contracts including employment agreements, non-compete agreements, etc.
- Loan agreements
- Lease agreements
- Minutes of board of directors and stockholder meetings
The Risk of Waiting
If you wait until late in the discovery phase before hiring your CPA expert, you run the risk of not having obtained key relevant documents from the opposing party that your expert will need to properly evaluate and calculate damages. This could put the success of your case in jeopardy.
How Your CPA Expert Can Help As Your Case Progresses
By hiring the CPA expert early in the case, the CPA can help the attorney by identifying specific documents to request from the opposing party to obtain relevant information that the expert will need to evaluate and calculate the plaintiff’s economic damages.
CPAs retained early in the case can also provide assistance with interrogatories by suggesting relevant questions or assisting in answering questions from the opposing party. As the case progresses, the CPA can also assist the attorney in preparing for portions of depositions that pertain to financial and other matters to gather evidence as to economic damages. Once the opposing expert has issued a report, the CPA can evaluate the opposing expert’s work, prepare a rebuttal report, and discuss the strengths and weaknesses of the opposing expert’s position and opinions with the attorney.
Our Forensics & Litigation Support Group can help. Jim Kern, CPA, CFE, CVA, specializes in damage calculations including lost profits, shareholder/partner disputes, lost earnings due to personal injury, construction losses, fraud and embezzlement, and performs evaluations of the financial condition and earnings of individuals and businesses. Contact him online or call 800.899.4623.