While this segment of CPAs' work has not been portrayed in a TV presentation equivalent to "L.A. Law," there is increasing reference in the media to accounting experts' involvement in complex commercial litigation. Many CPA firms are expanding their role in this area. The author offers cogent advice on a number of specifics. He defines the services and describes the useful assistance the CPA can offer attorneys--pre-trial activities, discovery, deposition, help at trial, or expert witness. There is a discussion of applicable professional standards, ethical considerations, and the matter of contingent fees. Also, a review of administrative matters involved with this work, including engagement acceptance considerations, and a useful glossary of relevant legal terms.

Mention the term "litigation support," and most accountants will envision the CPA as expert witness undergoing hours of grueling cross examination by a masterful attorney skilled in Medieval torture. Ask CPAs who have withstood this test of their mettle, and, while they may agree with this characterization of the art of trial advocacy, most find a sense of pride and satisfaction in their accomplishment, particularly those who have been successful. However, as this article demonstrates, such acts of heroism account for a small percentage of the litigation support practitioner's time. Far more often, the CPA's contribution to successful litigation is accomplished behind the scenes by combining accounting, auditing, and computer expertise with thorough preparation for potential litigation.

Of interest to the CPA, and a factor to be noted in any marketing efforts, the term "litigation support" conveys a very different image to many trial attorneys--that of a document storage and retrieval system to assist in managing the mountain of paper that litigation generates. Although this is one of many services that CPAs, expert in management information systems and computer systems, can provide a litigating attorney, it is not usually the primary service that the CPA is marketing. Accordingly, many firms have adopted a variation of the terms "litigation consulting" or "litigation services" to avoid such limiting mischaracterization of their capabilities in the minds of attorneys.

What is Litigation Consulting?

Litigation services are defined succinctly in the AICPA's Management Advisory Services Technical Consulting Practice Aid 7: Litigation Services, 1986 (TCPA 7), as "any professional assistance nonlawyers provide to lawyers in the litigation process." As "forensic" means "belonging to, used in, or suitable to courts of justice," forensic accounting refers to the "application of accounting principles, theories, and discipline to facts or hypotheses at issue in a legal dispute" and encompasses every branch of accounting knowledge.(1) Combining this broad definition with the explosion of litigation in our society--particularly commercial litigation--it is easy to understand why litigation consulting is a rapidly growing specialty service.

The universe of potential services which can be rendered is limited only by one's imagination; it is difficult to develop a neat, well- defined classification scheme. Exhibit 1 categorizes some types of litigation services engagements identified in TCPA 7.

Litigation Consulting is a Specialty

Like most areas of specialization, litigation consulting is replete with unique considerations and terminology not immediately obvious to, or understood by, the uninitiated. Although the attorney does not necessarily expect the CPA to appreciate the intricacies and nuances of the legal system, a basic understanding of certain procedural issues and common legal terminology is helpful. Exhibit 2 presents a glossary of certain terms endemic to the legal world.

Similarly, as a direct consequence of the interface with the legal discipline, there are certain concepts and distinctions which must be understood by the litigation services practitioner and which should be addressed early in any specific engagement.

Discoverable or Not?

Two closely related concepts that have a pervasive impact on the conduct of litigation services engagements are the attorney work-product privilege and the discovery rules. Although conflicting, both are designed to further the interest of justice.

Liberal in scope, the discovery rules generally provide that all relevant information bearing on a case should be made known to all concerned parties. Although local rules may vary somewhat, Rule 26(b)(1) of the Federal Rules of Civil Procedure provides the general rule that:

Parties may obtain discovery

regarding any matter, not privileged, which

is relevant to the subject matter

involved in the pending action... It is

not ground for objection that the

information sought will be inadmissible

at the trial if the information sought

appears reasonably calculated to lead

to the discovery of admissible

evidence.

However, to ensure that the attorney is able to render the fullest possible representation of his client, consistent with the canons of ethics, an attorney work-product privilege is recognized, protecting from discovery all writings prepared by an attorney, or under his supervision, in connection with, or in contemplation of, litigation.

Consultant or Expert Witness

These two opposing legal doctrines, intertwined with others, have a direct bearing on many aspects of the litigation consulting services practice. Upon deciding to accept a specific engagement, (see Engagement Acceptance Considerations, later), it is important to determine the role that the CPA is anticipated to play--consultant or expert witness. Such determination dictates the manner in which an assignment will be conducted. Whereas it is generally held that a consulting expert's work is protected from discovery by the opposition as an extension of the attorney work-product privilege, any and all information relied upon, or referred to, by an expert witness must be produced to the adversary in order to afford the opposing attorney the opportunity to cross-examine the expert witness on the bases for the expert's conclusions. Accordingly, the expert witness must be extremely careful about anything--including handwritten notes or spreadsheets showing alternate scenarios--committed to paper. Any seemingly contradictory statements can be effectively used to impeach the expert's credibility.

Armed with the attorney's work-product privilege, but subject to applicable professional standards (see Applicable Professional Standards, later), the CPA as a consulting expert is afforded greater flexibility in serving the attorney. Identification of a case's weaknesses as well as its strengths is one of the most important services that a consulting expert can provide.

As expert witness, however, the CPA, after careful study and evaluation of all information made available to him or her, must form an objective opinion with respect to the facts or hypothetical data presented and testify with respect thereto fully, openly, and without reservation. The expert is not an advocate for the attorney's client.

Theory vs. Practice

Although this distinction works nicely in theory, as a practical matter, the attorney may not have formed a conclusion as to the most advantageous role for the accountant to play at such an early stage in potential litigation. Similarly, it is not uncommon for the attorney to change the designation from consultant to expert witness during the pendency of the action. At such point, all of the consultant-turned- expert witness's work becomes discoverable by the opposition, who can be expected to pore through the material in search of inconsistencies and other information which can be used to discredit the CPA's testimony. For this reason, and given the fact that the work-product privilege is not absolute even in the case of a strictly consulting expert, it is probably safest to assume that all of the CPA's work is discoverable and to act accordingly, minimizing what is reduced to writing. In addition to schedules prepared and supporting workpapers, memoranda and correspondence, documentation that would have to be produced to the opposition would include work programs, time records, diaries, billing information and phone logs. Uncompleted work program steps or changes in planned procedures are fertile ground for a skilled attorney on cross- examination.

Engagement Acceptance Considerations

Typically an attorney will contact a CPA to explore the possibility of retaining the accountant to assist in pursuing or defending against a claim on behalf of a client. Such contact can occur at any stage of a threatened or pending action (see Assistance Throughout the Litigation Process, later), including the eve of trial, despite the CPA's preference for early retention. At such meeting, the attorney will explain the nature and merits of the case, the major issues likely to be involved, and the nature and timing of the services that the attorney wants the CPA to perform. A determination may not have been made as to whether the accountant should be retained as an expert witness or as a consulting expert. The attorney will usually provide the CPA with available copies of the pleadings and other pertinent documents that summarize the issues.

As with any potential engagement, the CPA must first assess whether he or she, or others in the firm possess, or can reasonably acquire, the necessary competence and technical expertise in the industry and subject matter at issue.

When satisfied as to his or her own competence, the CPA should then assess the attorney's competence and integrity. The forensic accountant's performance and effectiveness is inextricably linked to the qualifications, judgment and performance of the attorney; the litigation consulting specialist's reputation will not usually be enhanced through association with sub-par legal representation. The CPA must have respect for the lawyer.

Conflicts of Interest

Absence of significant conflicts of interest with any of the parties in a case is one of the most vital considerations in determining whether to accept a litigation services engagement. Conflicts of interest should be distinguished from the independence requirement of the CPA who performs an attest function. The concept of conflicts of interest has recently been added to Rule 102 of the AICPA Code of Professional Conduct (see Ethical Considerations, later).

A conflict of interest could exist if any of the parties or potential parties to a lawsuit are existing or former clients of the CPA's firm. An existing client relationship with any of the opposing parties, their officers or executives, their parent or subsidiaries or their counsel would obviously create a conflict.

With respect to former clients of the CPA's firm who may be parties to a suit in which the CPA is asked to serve, the conflict of interest determination will probably be made based upon such factors as what confidential information about the former client is in the possession of the CPA's firm, the length of time the party was a client, and the time that has elapsed since the client relationship was ended. Rule 301 of the AICPA Code of Professional Conduct, dealing with Confidential Client Information, may also affect the determination.

Even in situations in which no direct conflict of interest exists, most CPAs will decline to accept a litigation services engagement that is directly contrary to the interests of an existing client. Indeed, a firm's unwillingness to pursue a role in litigation against a non-client in an industry in which it has a well-recognized concentration effectively precludes some firms from capitalizing upon such long- established industry expertise.

Other considerations in the conflicts of interest area, particularly in engagements where expert witness testimony is likely or possible, include whether the anticipated testimony is contrary to positions taken by the firm in other cases or in audit engagements, and whether workpapers with respect to other clients might be subpoenaed for purposes of impeachment.

Because of the disastrous consequences of an unidentified or late- identified conflict of interest, multi-office firms and firms with many partners will usually find it advisable to circulate a confidential conflict of interest search among their partners prior to an engagement acceptance decision, specifying, at a minimum, all known parties, their counsel, all other interested parties and a brief description of the issues and services requested. Such a procedure could have averted the embarrassing situation wherein two partners from different offices of the same firm were retained by opposing counsel in a particular case. The case settled out of court as one might have guessed.

Once potential conflicts have been identified by the CPA, they should be disclosed to the attorney, even if the CPA has concluded that their existence would not impair the ability to act as requested. The attorney and his client should make the ultimate decision about such determination.

Interpretation 102-2 of the AICPA Code of Professional Conduct on Conflicts of Interest provides that as long as the "...significant relationship conflict is disclosed to and consent is obtained from such client...the rule shall not operate to prohibit the performance of the professional service." However, depending on the nature of the conflict of interest in a litigation services engagement, for practical reasons relevant to the CPA firm or the specific litigation, the conflict may not be of a nature that it can be "consented to" by the attorney.

Assistance Throughout the Litigation Process

As alluded to earlier, the value of the CPA's expert witness testimony is well-recognized. However, in the majority of cases that never go to trial and even in those that do, the CPA's most significant contributions are made during the preliminary and early stages of the lawsuit.

Pre-Trial Investigation

Too often overlooked by attorneys is the role that the litigation consulting specialist can play in assisting them in determining whether and how to pursue a claim. An objective professional evaluation of the facts is a service that can be worth many times its cost. At the risk of sanctions, attorneys have an obligation, under Rule 11 of the Federal Rules of Civil Procedure, prior to signing any pleading, to ensure that the action is being brought in good faith with a reasonable basis in fact. CPAs can assist in the pre-trial investigation in several ways. Depending upon the business and accounting sophistication of the attorney, the CPA might be instrumental in explaining the economic substance of a particular transaction, scheme or course of conduct. The accountant will be able to present alternative methods of estimating or computing damages based upon the incomplete information known at the time of instituting a suit. A cost/benefit analysis may be influential in determining whether a lawsuit is worth pursuing or defending. If the action involves allegations of accountants' malpractice or accounting issues generally, the CPA can educate the attorney in the accounting principles or auditing standards at issue. The accountant provides an objective sounding board against which the attorney can test his legal theories and strategies.

Discovery

Once the pleadings have been served (summons and complaint, answer, counterclaims if any, etc.) the case moves into the discovery stage during which the parties attempt to find out as much as possible about the other parties' facts and theories. It is during this phase that cases are won or lost and, accordingly, the period during which the CPA can provide the most valuable service.

To obtain basic information about the opposing party and the facts upon which its case is based, each party will usually begin by serving interrogatories on their opponents. Particularly as they relate to accounting, financial reporting, management information systems and industry practices, CPAs can assist the attorney in formulating the interrogatories and, thereafter, in evaluating the responses. The CPA can also assist in responding to the other side's interrogatories.

Requests for document production typically follow the exchange of interrogatories. In requesting the documents relevant to the case, specificity is important. Otherwise, the opposition will usually not volunteer what they think might be the object of the request. Here again, the CPA can help in ensuring that the request is all-inclusive and specific. The requested documents will then be made available for inspection and copying at the expense of the requesting party. A wise attorney will usually have the CPA review at least the financial and business records produced to determine completeness of the production and relevance of the documents prior to blanket-copying every piece of paper.

Analysis

With the universe of documents now available, earnest investigation and analysis can begin. This often involves development of computer models to sort, manipulate and analyze the raw data and present it to the attorney in such form as may be designated. Some of the more common types of analyses performed include: * Preparing "But-for" lost profits models; * Preparing other damage calculations under alternative methods; * Calculating actual losses; * Defining relevant markets and computing market share; * Developing profit/cost relationships; * Developing pro forma financial statements; * Restating or reconstructing financial records; and * Preparing valuations of businesses and professional practices.

Depositions

Throughout the discovery process, all parties typically make extensive use of a powerful tool--the deposition. The primary purposes of depositions are to gather information concerning relevant facts, documents and key persons to ascertain more details concerning the opponent's theory of the case, to identify assets to satisfy any judgment, and to lock in the opponent's version of the facts for possible impeachment at trial. Because of liberal discovery rules, almost any question can be asked during a deposition.

The litigation consulting specialist can provide valuable assistance to the attorney taking the deposition of any witness involved in the accounting, reporting, internal auditing or other financial aspects of a business. Although only the attorney can ask questions at the deposition, the CPA will have thoroughly prepared the lawyer beforehand with a list of questions and suggested areas to explore. If present, the CPA will usually be able to detect when a witness's answer has not been fully responsive or has been evasive. Lack of precision in the use of accounting terms by a witness is often a sign of weakness that the attorney might not detect. The litigation consultant can bring such matters to the attorney's attention by passing him a note or during breaks in the deposition.

If the CPA has been designated as an expert witness, it is likely that his or her deposition will be taken by the opposition during the discovery phase. The importance of proper preparation cannot be over- emphasized. Although conducted in a less formal setting than a courtroom, every answer (given under oath) is recorded and can be used at trial to impeach the CPA's credibility. Deposition testimony must be consistent with trial testimony. It should be noted that the CPA will have an opportunity to review the written transcript of his testimony and will be able, if necessary, to expand, in writing, on the answer to a particular question in order to clarify an intended response. Full advantage should be taken of this opportunity.

The opponent has additional objectives for examining the CPA expert witness. First, the opponent is attempting to assess the expert's training, background, education and work experience relevant to the issues involved in the case as well as learning about the expert's demeanor and style of testimony. The deposition will center upon the CPA's opinions, the bases for those opinions, the materials relied on, assumptions made in arriving at his conclusions, any rejected analyses, and information obtained but not used. To ascertain the limitations of the expert's opinions and conclusions, the attorney will usually attempt to discover what changes and what degree of change in facts and circumstances would cause the CPA's opinion or conclusion to change.

The deposition may be the most important event during discovery in commercial litigation because many cases settle before trial, based, in large measure, upon the attorney's evaluation of the testimony and demeanor of witnesses.

Other Service Rendered During Discovery Phase

The litigation consulting specialist can also provide advice to the attorney during settlement negotiations. Proposals presented by the opposition are evaluated and alternatives prepared. Short- and long-term business implications, as well as the tax ramifications, of settlement proposals are carefully weighed as part of this evaluation. The concept of the time value of money and the option of structured settlements are also considered.

Services at Trial

As litigation consultants, CPAs have a continuing role even after the trial commences. The CPA frequently assists the attorney in preparing lines of cross-examination, in supporting other expert witnesses, and in preparing and analyzing trial exhibits. The ability to evaluate the financial evidence presented by the opposition and to simplify complex issues for presentation to the trier of fact is perhaps the greatest contribution made by the CPA during a pressure-packed trial.

Expert Testimony at Trial

Before a CPA can testify at trial, an appropriate foundation must be established to qualify the witness as an expert in the field. This foundation is laid at the opening of the direct testimony by a series of questions by the attorney to establish the witness's education, professional credentials, employment experience as it relates to the issues involved in the trial, academic affiliations, publications, and lectures. A good attorney will usually not allow his expert's qualifications to be stipulated to by the other side, as such stipulation would deprive the expert of the opportunity to impress the trier of fact with an oral account of his or her credentials. Because of the psychological benefit of obtaining confirmation from the judge, the attorney will usually request a ruling from the bench as to qualification of the witness as an expert at conclusion of the foundational testimony.

If opposing counsel challenges the expertise of the witness with respect to the issues at hand, he may ask to examine the CPA under voir dire to demonstrate a lack of expertise. Because CPAs have commonly been employed as experts in calculating damages and in the application of accounting principles, auditing standards and other financial issues in many different industries, successful challenges are rare.

It is important for the CPA to be alert to the lengths to which opposing counsel will go to discredit the expert's testimony. Although the individual CPA is the expert (as opposed to the CPA's firm), any positions taken by the CPA's firm that are contrary to those expressed in the testimony will be raised to discredit the witness and confuse the issue in the minds of a jury. Accordingly, it is important for the witness to be aware of any seemingly contrary positions taken by any member of the CPA's firm in prior testimony, speeches, articles or other publications and to bring them promptly to the attention of the attorney. Consideration should be given to the establishment of a database to track such information within the firm.

In addition to being technically proficient within the field of inquiry and being able to think clearly under pressure, the successful accounting expert witness must be able to present a position convincingly, clearly and simply enough to be understood by a person of average intelligence. Technical jargon should be avoided if at all possible or quickly followed with an explanation in layman's terms. (See Exhibit 3 for definitions and evidentiary rules about expert witness testimony.)

Applicable Professional Standards

Reporting Standards

Because of the wide diversity in services of CPA typically renders in a litigation services engagement, compounded by the distinction between expert witness and consulting engagements and the interface with legal concepts, it is impractical to develop performance and reporting standards specific to litigation services engagements. Indeed, relevant AICPA pronouncements released in recent years have specifically exempted litigation services from their scope. These formal exemptions, beginning in approximately 1985, coincide with the time when litigation services became recognized as a service specialization within the accounting community. Any lack of exclusion in earlier standards should not, therefore, be viewed as implying application to litigation services generally.

In 1985, the AICPA exempted services rendered in connection with litigation support services from coverage by Statement of Standards for Accountant's Services on Prospective Financial Information, Financial Forecasts and Projections:

...this Statement does not apply to an

accountant's services involving

prospective financial statements that

are...used solely in connection with

litigation support service.

Although not controlling, the statement itself suggests that it may be referred to as useful guidance in such engagements. A rationale for the exception is that the CPA's work in these assignments is ordinarily subject to detailed analysis and challenge by each party to the dispute. Accordingly, the exception would not apply if the prospective financial statements prepared by the accountant are for use by third parties who, under the rules of the legal proceeding, do not have the opportunity for such analysis and challenge. An example occurs when creditors may not have such opportunities after prospective financial statements are submitted to them for the purpose of securing their agreement to a plan of reorganization.

In 1986, SAS 50, Reports on the Application of Accounting Principles, recognized this type of work as a major component of litigation services rendered by a CPA, and provided that:

This section does not apply ... to

engagements either to assist in litigation

involving accounting matters or to

provide expert testimony in

connection with such litigation...

AICPA's Statement on Standards for Attestation Engagements (1986), specifically excluded expert witness testimony from attest engagements. Subparagraphs (f) and (g) of paragraph 2 of the Attestation Standards specify:

Examples of professional services

typically provided by practitioners that

would not be considered attest

engagements include...

f. Engagements in which a practitioner

is to testify as an expert witness in

accounting, auditing, taxation or other

matters, given certain stipulated facts.

g. Engagements in which a

practitioner is engaged to provide an expert

opinion on certain points of principle,

such as the application of tax laws or

accounting standards, given specific

facts provided by another party so

long as the expert opinion does not

express a conclusion about the

reliability of the facts provided to the

other party.

Recent AICPA Actions

In response to requests for clarification, AICPA committees considered interpretations of existing standards during 1989. Because practitioners performing litigation services are regularly subjected to questions and challenges, particularly during cross-examination, about whether their work was performed in conformity with professional standards, it was felt that clarification was needed. Reinforcing this belief, the Professional Ethics Division of the AICPA has begun to receive complaints involving CPA's work performed in connection with civil litigation.

Although the Auditing Standards Division has prepared drafts of proposed interpretations, including clarification of the carve-out of litigation services from the Attestation Standards, as of the date of this writing, such interpretations have not been approved for release.

It should be noted that, at its January 1990 meeting, the MAS Executive Committee concluded that it would not release its proposed interpretation to MS Section 11.01 pending completion of its review and revision of the MAS standards generally. Contrary to beliefs held by some, such interpretation was never formally issued.

Other Guidance

Although non-authoritative, TCPA 7 continues to be an excellent reference guide. Its authors recognize that expert testimony may be written under certain circumstances: * As a result of stipulation by the parties; and * At the judge's request for trial efficiency (which includes instances when the direct testimony is submitted in writing and only the cross-examination, rebuttal and surrebuttal are oral).

The written report to be rendered:

can vary from only a written statement

of the expert's opinion to an extensive

report with detailed assumptions and

supporting schedules showing all

computations.... There are no

specific elements for reports in litigation

services engagements, because the

form and content are closely

controlled by the lawyer retaining the

CPA. However, the CPA would insist

that his conclusions and analyses not

be misrepresented by the form or

content of the presentation.

Despite there being no authoritative guidance for written reports generated as a result of litigation services engagements, it is advisable, at a minimum in any written report, to designate it as prepared in connection with a specific action captioned at the top of each page.

Ethical Considerations

Despite any confusion over what reporting or technical standards apply, there is little doubt about the applicability of the following Rules in the AICPA Code of Professional Conduct:

Rule 102 Integrity and Objectivity

In the performance of any

professional service, a member shall

maintain objectivity and integrity, shall be

free of conflicts of interest, and shall

not knowingly misrepresent facts or

subordinate his or her judgment to

others.

This Rule should be carefully observed in dispelling misconceptions such as "we can do anything that the attorney asks us to do" under the guise of attorney work-product privilege. In performing litigation services, CPAs' professional judgments cannot be subordinated to those of the attorneys.

Rule 201 General Standards

A member shall comply with the

following standards and with any

interpretations thereof by bodies

designated by Council.

A. Professional Competence.

Undertake only those professional services

that the member or the member's

firm can reasonably expect to be

completed with professional competence.

B. Due Professional Care. Exercise

due professional care in the

performance of professional services.

C. Planning and Supervision.

Adequately plan and supervise the

performance of professional services.

D. Sufficient Relevant Data. Obtain

sufficient relevant data to afford a

reasonable basis for conclusions or

recommendations in relation to any

professional services performed.

Caution must be exercised in applying technical standards, which interpret the general standards adopted by other practice areas of the profession, to litigation services. For example, the planning requirement of Rule 201C should not be construed to require that such planning be documented in writing, lest the disastrous consequences of discovery ensue. Accordingly, caution must be exercised in documenting planning and work programs.

Rule 302 Contingent Fees

Professional services shall not be

offered or rendered under an

arrangement whereby no fee will be

charged unless a specified finding or

result is attained, or where the fee is

otherwise contingent upon the

finding or results of such services.

However, a member's fees may vary

depending, for example, on the

complexity of services rendered...

Although, as part of a proposed agreement with the FTC, the AICPA has decided not to actively enforce this rule, several states, including New York, have not adopted a similar stance. Thus, many CPAs are still effectively precluded from accepting engagements on a contingency basis.

Because a plaintiff attorney often accepts cases on a contingent fee basis, consistent with the bar's canons of ethics, it may be necessary to remind the attorney that such a practice may not be appropriate or permissible with respect to your compensation. So as not to imply that we hold ourselves to a higher ethical standard than the attorney, a full explanation of the difference in roles may be necessary. Even if permissible, in the context of expert witness testimony, a fee contingent upon the nature and results of testimony would be inappropriate as it would serve to undermine the expert's objectivity, and could not withstand the rigors of cross-examination.

Administration

Many of the details of the administration of a litigation services engagement are a direct consequence of the concepts explored in this article. A brief discussion of certain of the more unique considerations will demonstrate the pervasiveness of the legal ramifications, and will serve as a review.

Who is the Client?

Not typically an issue in most traditional services rendered by a CPA firm, this fundamental determination, if carefully observed once made, may serve as the basis for the establishment of the attorney work- product privilege. Although the ultimate beneficiary of the CPA's work is the party to the litigation, the litigation consultant is being retained by the attorney to assist him or her in rendering legal representation and advice. In such role, the litigation consultant's (as opposed to an expert witness's) work may be shielded from discovery under the attorney work-product privilege. To bolster such position, once the decision is made in consultation with the attorney, all paperwork within the CPA's office including the engagement letter, correspondence and billings, should be consistent in naming the attorney as the client.

Engagement Letters

Some courts have held, however, that an engagement letter between the attorney and the CPA is not covered by the work-product privilege. Accordingly, the contents of the engagement letter are subject to discovery. An unnecessarily detailed engagement letter can provide the opponent with a "road map" of the planned conduct of an engagement, forming the basis for extensive and potentially damaging cross- examination.

Primarily for this reason, engagement letters, if utilized, should contain only a general summary description of the services to be performed. It is acceptable, and in some cases desirable, for a letter prepared by the attorney and addressed to the CPA to serve as the engagement letter.

The engagement letter should specify billing and collection procedures. Despite the admonition to consistently name the attorney as the client, some attorneys will strenuously resist being held responsible, in the engagement letter, for payment of the CPA's fees. If they cannot be persuaded that such a stance bolsters the attorney work- product privilege claim, then it is probably best to avoid going into detail as to specific responsibility for payment.

For the reasons stated earlier about contingent fees, billings should be based on hours expended at specified billing rates plus out-of-pocket expenses. Because of the demanding nature of the work and the expertise required, it is not unusual that billing rates for litigation services exceed rates in many other practice areas.

It should be noted that invoices have been held to be discoverable; accordingly, as with engagement letters generally, excessive detail on the bills should be avoided. Of course, the client has a legitimate interest in knowing for what services it is paying. Usually, because of the close working relationship between the attorney and the CPA, the attorney will be well aware of the time being expended. Accountants would do well to keep the attorney apprised of their efforts on a regular basis. Progress billings are suggested. It is often desirable for the accountant to request a retainer to be applied against the final invoice.

Timing and Staffing Considerations

As most litigation services practitioners have discovered, their time is not their own; timing of an engagement is almost entirely outside their control. The court calendar, judges and attorneys all dictate the CPA's schedule. Thus, in addition to being responsive, the accountant must react to the start and stop nature of the work. Because of the unforgiving environment and the expertise necessary to appropriately address the significance of the issues litigated, staffing is usually top-heavy with extensive partner and manager involvement. Expert witness testimony is almost always provided by partners and managers. However, there are opportunities to utilize and develop staff at other levels under careful supervision.

The following attributes are desirable for staff performing litigation services: * Strong foundation in accounting theory; * Some solid audit experience; * Proficiency on computers; * Willingness to carefully plow through voluminous information; * Research skills; * Attention to detail (discipline and accuracy); * Strong analytical abilities; * Ability to see the "big picture;" * Strong communication skills, written and oral; and * Ability to think on feet (under pressure).

Conclusion

Why would individuals, staff personnel, managers, or partners willingly submit to the rigors of litigation services engagements? The satisfaction of demonstrating expertise in their chosen profession under the pressures imposed by our legal system serves as its own reward, to say nothing of the contribution such specialty can bring to the firm's bottom line. However, to retain the stature accorded the accounting expert, CPAs must constantly strive to maintain the objectivity and integrity that are hallmarks of professional assistance.

(1)The term "forensic accountant" is sometimes used to describe a fraud auditor or investigative accountant who searches for evidence of criminal conduct or assists in the determination, or rebuttal of, claimed damages.

Raymond T. Sloane, JD, CPA, is a Partner in the Litigation Consulting and Business Valuations Department of Margolin, Winer & Evens, CPAs, Garden City, NY. He is a member of the AICPA, the NYSSCPA, the American Bar Association, the New York State Bar Association and the American Arbitration Association. Mr. Sloane is also a member of the Technical Standards Subcommittee of the Professional Ethics Division of the AICPA and the Litigation Support Committee of the NYSSCPA.