Expert witness engagements. (Cover Story)by Berliner, Robert W.
There are certain parallels between a CPA testifying as an expert witness and rendering an audit report on financial statements. Both involve the expression of opinions by the CPA based on the performance of various procedures during the course of a professional engagement. Both span lengthy periods of time, involve the examination of various documents, and require familiarity with professional standards, to mention a few. But the comparison quickly ends when the expert witness CPA (hereafter referred to also as the expert witness or the expert) is called to the witness stand and the court clerk administers the oath. Each time I repeat the oath I am reminded of the distinctive nature of the expert witness engagement. As I take the stand, I invariably feel a unique sense of challenge, responsibility, and exhilaration.
These emotions, of course, are also experienced by CPAs performing more traditional services. In the audit arena, for example, I can quickly think of such situations, for example making a proposal for sizable new business to a prospective client, recommending a major change in some aspect of the client's business, proposing a significant audit adjustment, and making an important presentation to an audit committee or a board of directors. What makes serving as an expert witness so unique is the recognition of the direct effect your testimony can have on the resolution of an important dispute between the parties to the lawsuit. Put another way, a lot is usually at stake and your testimony is apt to have a significant influence on the outcome. And, to complete the picture, the opposing side in the lawsuit is represented by legal counsel whose objective in cross-examining you is to attack your credibility and competence.
When the opportunity to serve as an expert witness arises, as with any new business opportunity, the CPA must carefully consider a number of factors before deciding to accept the engagement.
Conflicts of Interest
Foremost among these is the need to check whether the relationships of the CPA or his or her firm can lead to conflicts of interest with any of the parties to the lawsuit or the law firms involved. An inconsistency as to the position of the CPA or his or her firm on a key issue in the lawsuit may be another reason for not accepting a prospective engagement. The discovery that the position an expert witness is supporting in a lawsuit is inconsistent with a previous position he or she has taken or a position advocated by his or her firm, or accepted when taken by one of its clients, can be devastating. For this reason, it is good practice for the prospective expert to provide copies of previous testimony and articles to the lawyer heading the litigation team. Not only does this enable the lawyer to get a handle on possible inconsistencies with issues in the lawsuit, but it also helps the lawyer to learn more about the expert witness.
Scheduling problems are another type of conflict to avoid. Usually, the prospective expert will be a senior partner in a firm and will have significant and demanding responsibilities, the timing of which may conflict with the requirements of the potential engagement. As discussed later, expert witness engagements impose limitations on the ability of the expert to delegate work. Prospective experts must consider whether their schedules will permit them to devote the time, and when it is anticipated that their services will be required.
CPAs appreciate the need for the particular expertise required in an engagement to be able to perform their services with professional competence. Lawyers decide to use an expert when they believe that the subject matter of a case requires specialized knowledge. The very concept of expert testimony is based on the ability of an expert to speak authoritatively on a particular subject by virtue of his or her education, training, and experience.
A CPA whom lawyers consider for an expert witness engagement is likely to have considerable expertise in accounting, auditing, business, and financial matters. The test is whether he or she has the specialized expertise required by the facts and circumstances of the lawsuit. The witness stand is not the place to resolve doubts as to whether the CPA's expertise is sufficiently relevant to enable him or her to testify authoritatively and convincingly on the particular issues.
Position on Issues
Although, as explained later, the expert witness CPA must not be an advocate for the client, he or she does need to believe in the merits of the client's position on the issues. If the prospective expert feels any hesitancy or apprehension about needed testimony, it is essential to discuss this with counsel and explain the basis for the lack of conviction. Such a discussion may identify an equally acceptable form of testimony that the prospective expert can fully support. At the other extreme, it may lead to the conclusion not to engage the CPA. Unconvincing testimony can do more damage to the client's case than no expert testimony at all.
Of course, the expert's lack of conviction may not surface until he or she has performed considerable work on the engagement or the facts turn out to be not exactly as they were initially envisioned by counsel.
I was involved in one accounting malpractice lawsuit where the lawyers sought expert testimony on behalf of a large accounting firm. The point of contention was a revenue recognition issue--the client had recorded some very complex and unique transactions as sales and the accounting firm had taken the position that the client's treatment was in accordance with GAAP. Although my first reaction was to question the acceptability of the accounting, the lawyers believed that a better appreciation of the transactions and the nuances of the client's situation would enable me to overcome my reservations. I agreed to revisit the accounting after getting an in-depth understanding of the underlying facts and circumstances, the basics of the transactions, and the nature of the client's business. However, a review of a score of documents, the relevant audit workpapers, and the authoritative accounting literature, as well as a number of discussions with partners of the client accounting firm as to their rationale, reinforced my view that the treatment of the transactions was not in accordance with GAAP.
STAFFING THE ENGAGEMENT
The expert witness engagement is geared to the testimony to be provided at trial as contrasted to, for example, the audit engagement, which is geared to the opinion to be rendered on the financial statements. This fundamental difference in end-product causes a marked difference in the composition of the engagement teams for the two services.
Although managers, seniors, and relatively inexperienced staff have all played important roles on engagements in which I was the expert witness, generally speaking, I find that the proportion of the expert's time to the total engagement time far exceeds that of the audit partner on the typical audit engagement. This is how it should be, given the difference in end-products between the two services. The culmination of the audit engagement, of course, involves a lot more than the delivery of the written audit report. There are important meetings with senior client officers and audit committees to discuss the resolution of audit and accounting problems, matters of financial statement presentation and disclosure, audit observations and recommendations, and other matters. Rarely, though, does the audit partner attend such meetings alone. He or she is usually accompanied by the audit manager and frequently by another partner. Clients recognize that the partner has delegated much of the performance of the audit to other engagement personnel and are not surprised to find the manager more familiar with certain details.
However, only one witness can take the stand at a time. The expert witness is totally on his or her own when testifying at trial; there is no room on the stand for the audit manager or another partner. Further, the expert's work will be inspected and dissected for possible errors. If any are found, however immaterial they may be, opposing counsel is likely to dramatize them in cross-examination. For these reasons, the expert witness needs to be considerably more familiar with the details than the audit partner. The expert's credibility could be irreparably damaged if he or she is unable to respond to questions because of unfamiliarity with the details.
Furthermore, when it comes to testifying at trial, it is essential that the work the expert relies on for conclusions either be performed by the expert or under the expert's direction and supervision. Otherwise, opposing counsel may object to the admissibility of the expert's testimony and the expert may be precluded from offering his or her conclusions. Such a turn of events would be highly undesirable and would require the expert's staff to testify about how the work was performed to overcome certain evidentiary objections.
Experienced trial lawyers are well aware of the need to structure the engagement so that the expert witness is personally involved in all key respects. Most lawyers, while giving the expert witness considerable latitude in staffing the engagement, take steps to assure that considerable input of the expert's own time is planned and that the expert's testimony is based on his or her own firsthand supervision or review of the work.
I once worked on a large case in which I made extensive use of an audit manager who helped me to review the audit work-papers supporting the audits of several years, which were in question. After expending seveal hundred hours in this effort, the manager resigned to take another position. Fortunately, the manager and I were involved together in other matters as well, and we interacted on almost a daily basis. This kept the damage to a minimum under the circumstances.
Expert witness engagement are highly volatile and unpredictable and, therefore, very difficult to plan. At their outset, the lawyers may not know what documents and data will be available for the expert's review and analysis. As the engagement progresses, specific documents and data are identified, additional facts are discovered, motions are ruled on prior to trial, and the lawyers' understanding of the facts and legal issues are subject to change. These developments cause significant modifications in the work plan of the expert witness.
Considerable flexibility is needed by the expert to cope with the changes in the litigation timetable that inevitably occur as a result of the vagaries of the court calendar, lawyers' commitments in other lawsuits, and a host of other unforeseen matters.
Given the inherent uncertainties in the litigation timetable, it is particularly important for the expert witness to establish a close working relationship with the senior trial lawyer heading the litigaation team. The expert has to understand clearly what the lead lawyer experts and when it is expected, the lead lawyer needs to know what the expert can and cannot do, and there must be a meeting of their minds as to the best route to the oveall objectives. This requires the expert and the lead lawyer to spend sufficient time together early on for the expert to learn the key facts, legal issues, and basic strategies of the litigation team. Such early involvement will enable the expert to assist the litigation team in the development of evidentiary support during the discovery phase of the lawsuit.
Scope of Engagement
Although the expert's procedures need to be tailored to the objectives of the particular engagement and focus on matters identified by the litigation team, generally speaking the expert first becomes familiar with all important facts and aspects of the lawsuit, particularly those relevant to the testimony to be provided. The expert accomplishes this by means of discussions with the lawyers and review of all pertinent documents, workpapers, deposition transcripts, and other materials obtained from the lawyers.
Once armed with the facts, the expert analyzes them, develops assumptions as necessary, and draws conclusions. One very experienced trial lawyer recently told me that the facts of a case are the one thing he has to live with without being able to do much about. The same is true of the expert witness. Auditors can readily empathize with this observation as they are very much in the same boat when it comes to applying GAAP and GAAS.
Expert witness engagements should be designed, of course, to put the expert in a position to provide testimony at trial. At the same time, experts should recognize that most lawyers expect them to be more than mere witnesses at trial. They expect the expert to independently test their thoughts about key matters, challenge their propositions, creatively suggest new ones, and communicate any weaknesses the expert discerns in the thesis of the case.
The expert should stick to the "issues" and avoid the temptation to stray and review irrelevant materials, no matter how interesting they may be. It is very easy for an expert to unintentionally run up fees on nonessential work. This can be avoided by working closely with the lawyers, jointly considering what is relevant, and keeping them continuously appraised of progress and findings.
Further, the expert witness should be mindful not to volunteer to the lawyers opinions on issues other than those the lawyers have asked him or her to address. There may be good reasons why the lawyers would ask the expert witness CPA to address certain issues, but not others. Once the expert witness has volunteered an opinion on one of these other issues, it may well be that opposing counsel will be able to determine that opinion at deposition and require the expert to voice that opinion at trial during cross-examination.
Documenting the Expert's Work
The expert witness must also be careful to follow the lawyer's guidance in terms of documenting his or her work. The expert witness' workpapers, notes, and other documentation, unlike those of a consultant, may not be protected by the attorney work product privilege. Inconsistencies, contradictions, tentative findings and conclusions, and other potentially harmful disclosures can be discovered by opposing counsel and used to damage the expert's credibility. Accordingly, the expert needs to be particularly careful in determining when and what to document, while at the same time accumulating sufficient documentation to support his or her testimony. To help strike this balance, the expert should use professional judgment in continual consultation with counsel.
Need to Maintain Objectivity
The legal distinction between the role of the expert witness and that of the expert consultant is important not only in terms of the documentation of the CPA's work, but also in terms of the work performed itself. While expert witness engagements are structured to also provide consulting assistance to the litigation team, lawyers have to guard against allowing the extent of the consulting assistance to dilute the independence of the expert witness and the effectiveness of the testimony.
Unlike the lawyers on the litigation team, the expert witness CPA is not an advocate for the client and must maintain complete objectivity and avoid any form of partiality even though he or she is called upon to support the position of the client. The expert witness should make independent decisions and avoid the appearance of being spoon-fed.
From time to time, some lawyers may allow their strong advocacy of the client's position to unduly influence the expert's judgment. CPAs should respond to such efforts with considerable care and sensitivity.
To assure the complete objectivity of the expert, lawyers may keep the conclusions resulting from the work of other experts they have engaged in the case away from the CPA until the CPA reaches his or her own judgments. Lawyers also frequently separate the CPA from the other experts and restrict the CPA to areas relevant to his or her testimony. This is done to preclude opposing counsel from being able to use the CPA's testimony to refute the testimony of these other experts.
Developing the Testimony
Lawyers tell me that a very high percentage of civil litigation is settled before trial. The figure that sticks in my mind is 80%. To the expert witness, this means that he or she will make it to the witness stand in only two out of ten engagements.
Hopefully, this will not discourage you from reading further. You may just be the expert witness who is "lucky enough" to testify at trial on your current or next engagement. My own experience, in fact, supports higher odds. I have provided testimony at trial about one out of three engagements. Also, expert witnesses often provide expert testimony at depositions in lawsuits that settle before trial. Of particular importance to the prospective expert witness is the fact that the lawyer's perception of the expert's capability on the witness stand is often the single most important factor influencing the engagement decision.
Interface Between Lawyer and
The interface between the litigation team and the expert witness becomes more concentrated as lawyer and accountant begin to work together to frame the most convincing testimony. Trial lawyers with whom I have worked tend to put off this effort until I independently draw my own conclusions on the issues in the case. Once this point is reached, we join forces to integrate my views about accounting, auditing, and financial matters with the legal theories of the case and the trial strategies of the litigation team.
On the other hand, trial lawyers expect expert witnesses to be creative in making suggestions to improve testimony. They recognize that testimony is delivered by expert witnesses, not by lawyers. Accordingly, a key consideration in choosing an approach to make a point is what best suits the expert witness in terms of such things as his or her individuality, personality, and style of speaking. The bottom line is that the expert witness must feel comfortable about the testimony. Juries are apt to notice when a witness is uncomfortable on the witness stand. The best testimony I ever gave resulted from a continuous dialogue one trial lawyer took the lead in establishing with me. We spent much time together discussing the case from every conceivable angle. We got to know each other's views on the issues in the case so well that it was easy for us to maintain a rhythm in the courtroom despite unanticipated turns because of evidentiary rulings, the lawyer's spontaneous conclusions that more or less explanation was necessary, and other developments.
Any doubts I may have had that one could be overly prepared to testify vanished as a result of this experience. After a day of testimony, the opposing counsel asked the judge to postpone the next morning's session because they believed the case could be settled. That was just what happened, on terms highly favorable to my client, before the afternoon session was scheduled to commence.
Simplifying Technical Testimony
Efforts to simplify technical testimony are essential if the expert witness is to succeed in assisting the trier of fact to determine the ultimate issues of a case. By means of his or her testimony, the expert witness CPA is supposed to educate the judge and jury on the GAAP, GAAS, financial, and business matters that they need to understand to fulfill their roles in the case.
Experts should bend over backwards to use layman's language and avoid technical terms. This is particularly difficult for CPAs who use GAAP and GAAS terms as part of their daily business vocabularies. One way for an expert to relate to a jury is to use analogies to household and everyday situations. Analogies can convey unintended messages, however, and should be used carefully and be pre-approved by counsel.
Most CPAs have a good idea of how difficult it is to communicate technical accounting issues even with client executives who are very experienced in business matters. The problem is compounded exponentially when the expert witness CPA must communicate with jurors who are not versed at all in business matters and have difficulty understanding figures and accounting and financial concepts. To make matters even more difficult, the expert witness is limited in his or her communication to direct responses to questions asked by the lawyer. Opposing counsel is likely to object when the expert's answer goes beyond the question asked.
Using Visual Aids
The trial lawyer in a recent case, involving difficult technical issues relating to the accounting for equipment leases on the finance method, got around this problem by calling me to the witness stand twice, once at the very beginning of the case and again well into the case. My first appearance on the witness stand was intended solely to educate the judge and jury on the accounting and auditing issues involved, and their ramifications on the financial statements. I was not allowed to touch on the facts in the case that were the subject of my second appearance later in the trial.
I prepared a series of visual aids to use in the educational process. Some were large cardboard charts that were placed on an easel near the judge and jury; others were overhead transparencies that were projected onto a large screen. I used a "building block" approach, starting with the simplest of illustrative balance sheets and income statements for a hypothetical business selling, for cash only, one consumer product. I gradually added complexities before introducing leasing transactions and illustrative financial statements for a hypothetical equipment leasing company.
The lawyer and I attempted to anticipate whatever questions the jurors might want to raise if the exercise were to take place in a classroom setting. The lawyer effectively used a pointer on the chart or screen to help focus the jurors' attention on whatever financial statement component was the subject of the question. The process took somewhat less than a day and a half of courtroom time and proved to be a sound courtroom strategy.
My experience is that charts, graphs, and other visual aids can be most effective tools in assisting an expert witness to communicate in the courtroom. They should be developed simultaneously with the development of the expert's testimony and carefully reviewed by the expert witness to assure their completeness, accuracy, and understandability.
When planning to use such visual aids, every effort should be expended to avoid errors. Errors can have a devastating effect on the jurors' perception of the expert's competence. In the rare instance where an error is made, and the expert discovers it while on the stand, he or she should promptly and voluntarily point it out while testifying. The chances that opposing counsel will fail to notice the error and use it to impeach the witness are not worth taking.
The expert should keep in mind that even the simplest visual aid may not speak for itself. It is imperative that he or she introduce each visual aid, taking care to explain it fully; for example, what each column is for and what each bar on a bar graph is intended to represent.
Usually, lawyers for both sides will want to use visual aids and will have prear-ranged their use with the court. Nevertheless, it is advisable for the expert to check with the lawyers that their use will be permitted. I was recently involved in a trial as a damages expert where one of the witnesses planned to use a blackboard to explain a very important concept. The blackboard was visible in the front of the courtroom but, for a reason I never understood, the judge refused to allow it to be used. Counsel on the witness' side did his best to convince the judge otherwise but was unsuccessful.
PREPARING TO TESTIFY
Much more remains to be done by the expert witness getting ready to testify in court than reaching a meeting of minds with the trial lawyer as to the substance of the testimony. Presented in the accompanying sidebar, in the form of do's and don'ts, is guidance for testifying. Some of the suggestions are applicable to testimony provided either at deposition or trial, while others particularly apply to testimony at trial, including cross-examinations.
It is beneficial for the expert witness to "run through" his or her presentation with the trial lawyer who will be asking the questions in court. A practice session is, plain and simple, advisable any time any kind of presentation has to be made, particularly one to strangers in a stressful situation where it is important to be as coherent as possible.
Before experiencing my first practice session as an expert witness, I must admit that I was skeptical of the need for it, thinking that I was sufficiently prepared and that it would be a waste of time. It did not take long for me to change my mind. When attempting to respond to certain questions, I found myself groping for a starting point even though I was on top of the subject matter. Certain other questions stumped me in that I couldn't figure out where the lawyer was coming from or what kind of an answer he was looking for. Identifying these glitches beforehand enabled us to "read" each other better, improve our teamwork, and avoid any stumbling in the courtroom.
The practice session is of maximum value when it is also used to prepare the expert witness for cross-examination. Cross-examination is the phase of the expert's appearance on the witness stand when opposing counsel takes over the questioning and attempts to exploit weaknesses in the direct testimony and otherwise discredit the expert. Accordingly, cross-examination is far more difficult for the expert than direct examination and can be quite stressful.
This couldn't have been made clearer to me than in one lawsuit in which I spent a lot of time in the courtroom observing firsthand the testimony of a number of fact witnesses. During a break in the trial, opposing counsel (the same lawyer who took my deposition) came up to me and, with a smirk on his face, remarked that he couldn't wait to get me on the stand during "cross" and tear me apart. By covering the cross- examination in the practice session, counsel for my side helped to prepare me for this psychological battle of wits by anticipating questions opposing counsel might ask and critiquing my responses to such questions.
Final Preparatory Steps
Several months may elapse between the time the expert develops his or her testimony and the time a case comes to trial. The rehearsal will also help the expert witness to identify those areas of his or her testimony that require further "brushing up" and those documents, exhibits, workpapers, and sections of the professional literature that warrant review one more time. Other final preparatory steps that I would suggest include the following:
* Reviewing deposition transcripts to refresh the expert's recollection of that testimony and to help assure consistency between positions at deposition and positions to be taken at trial;
* Reviewing articles and transcripts of previous testimony given in other cases that touch on issues relevant to the current case, again to reconcile any inconsistencies;
* Taking one last pass-through of visuals and exhibits to be used;
* Visiting the courtroom to observe proceedings and to get a feel for the manner in which the judge conducts the trial, the composition and attentiveness of the jury, and the styles of the trial lawyers, particularly the one likely to conduct the cross-examination; however, in some cases, lawyers prefer the expert to be present only for his or her testimony;
* Clearing the expert's calendar for the expected duration of the testimony and a transfer of any responsibilities that cannot be postponed to colleagues; and
* Arranging the logistics of telephone communications with secretaries and others with whom the expert needs to maintain contact during his or her testimony. I strongly recommend reserving court recesses and lunch breaks for discussions with other members of the litigation team.
PERHAPS NOT FOR
Expert witness engagements require CPAs to apply their technical, analytical, and communication skills in a creative and professional manner. Courtroom testimony draws upon a combination of personal skills, including discipline, patience, self-control, and the ability to remain calm under pressure. Although being an expert witness is really not for everyone, CPAs with the necessary professional and personal skills can provide vital assistance to trial lawyers and make a major contribution to the successful resolution of legal disputes.
Robert W. Berliner, CPA, specializes in litigation services as a consultant to Paneth, Haber & Zimmerman. He is a member of the General Committee on Accounting and Auditing of the NYSSCPA and former chairman of its Professional Ethics Committee. Mr. Berliner has served on the Auditing Standards Board of the AICPA and the Emerging Issues Task Force of the FASB. He is also an adjunct professor of accounting at New York University's Stern School of Business.
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