Chapter 10 HOW TO WRITE AN EFFECTIVE EXPERT REPORT

• Jurisdiction: United States

Chapter 10 HOW TO WRITE AN EFFECTIVE EXPERT REPORT

James S. Feltman

Melissa Kibler Knoll

Michael N. Zembillas

In litigation support engagements, forensic accountants can be retained to serve in a variety of roles. Most commonly, forensic accountants are engaged as either expert witnesses or consultants to assist in the trial process. An expert witness is an individual formally designated to render an opinion before a trier of fact. A consultant is an individual retained, usually by counsel, to advise on facts, issues, strategies and other matters; however, he or she does not testify before a trier of fact. This chapter guides the forensic accountant²⁰¹ in how to best draft an expert report when serving as an expert witness in litigation support engagements, including those involving fraud.

An expert witness is generally tasked with drafting one or more expert reports prior to trial to present the expert's understanding of the facts and issues and to offer his or her opinions relating thereto. Depending on the practitioner's professional affiliations, the expert may be subject to applicable industry authority governing professional conduct in the preparation of the report. This chapter addresses the professional standards governing Certified Public Accountants and Certified Fraud Examiners, promulgated by the American Institute of Certified Public Accountants and the Association of Certified Fraud Examiners, respectively. In addition to the aforementioned industry guidance, legal authority further governs the preparation of expert reports. The requirements for an expert report may differ depending on whether a case is pending in federal or state court. This chapter focuses primarily on the federal rules applicable to expert witnesses who prepare written reports and on the Federal Rules of Evidence and the Federal Rules of Civil Procedure.

The Federal Rules of Evidence govern the admission of facts in the federal court system. The Federal Rules of Civil Procedure, specifically Rule 26, explicitly set forth certain elements that are required to be included in an expert report. The requirements contained in Rule 26 are general in substance; however, courts' interpretations relating thereto serve to provide additional guidance to experts. This chapter provides an overview of those sections of the Federal Rules of Evidence and the Federal Rules of Civil Procedure that are most applicable to expert witness engagements, including the preparation of expert reports. Additionally, this chapter provides techniques that can be employed by expert witnesses to draft a powerful, persuasive and effective expert report.

I. Industry Guidance Applicable to the Preparation of Expert Reports

A. American Institute of Certified Public Accountants

The American Institute of Certified Public Accountants' (AICPA) Code of Professional Conduct (AICPA Code of Professional Conduct) governs all services rendered by Certified Public Accountants (CPAs) who are AICPA members. Certain sections of the AICPA Code of Professional Conduct have particular applicability to the practice of litigation support services. AICPA members and their employees are required, at a minimum, to adhere to the Statement on Standards for Consulting Services Section 100, Definitions and Standards (CS Section 100) when performing litigation support services. CS Section 100 specifically subjects litigation support engagements to Rules 1.300.001, 1.310.001, and 1.100.001 of the AICPA Code of Professional Conduct.

Rule 1.300.001, the General Standards Rule, requires that accountants meet standards of professional competence, due professional care, planning and supervision, and sufficiency of relevant data. Standards of client interest, reaching an understanding with the client, and communication with the client are established under Rule 1.310.001, the Compliance with Standards Rule.

In addition to Rule 1.300.001 and Rule 1.310.001, litigation support engagements are also subject to Rule 1.100.001, the Integrity and Objectivity Rule, of the AICPA Code of Professional Conduct, and interpretations relating thereto. The following sections address CS Section 100 and the sections of the AICPA Code of Professional Conduct that have particular applicability to the practice of litigation-support engagements.²⁰²

1. CS Section 100: Standards for Consulting Services

CS Section 100 establishes and defines certain terms and types of services applicable to AICPA members holding themselves out as CPAs when providing consulting services. Specifically, CS Section 100 defines the "Consulting Services Practitioner," the "Consulting Process," and "Consulting Services."²⁰³ CS Section 100 also defines certain services that qualify as consulting services for purposes of the standard, including "consultations," "advisory" services, "implementation" services, "transaction" services, "staff" and other support services, and "product" services.²⁰⁴ Litigation services, including the preparation of expert reports, are classified as transaction services by the AICPA, or services in which the practitioner's function is to provide assistance related to a specific client transaction, generally with a third party.²⁰⁵

2. Rule 1.300.001: Accepting and Performing the Engagement

CS Section 100 requires practitioners engaged in litigation support services to comply with the "general standards" of the accounting profession as promulgated by AICPA Rule 1.300.001.²⁰⁶ Rule 1.300.001 requires that practitioners possess professional competence, exercise due professional care in the performance of their work, adequately plan and supervise the performance of staff, and obtain sufficient relevant data to afford a reasonable basis for conclusions reached.²⁰⁷ The expert report, in turn, should also contain relevant information supporting compliance with these standards.

a. Examine Qualifications Before Accepting Engagement

Practitioners should carefully consider their compliance with standards relating to professional competence prior to accepting an expert witness engagement, as it is likely that the practitioner's qualifications as an expert will be examined and possibly challenged by opposing counsel. Therefore, it is imperative that practitioners accept expert witness engagements only in cases where their professional experience is appropriate and commensurate with the case-specific facts and circumstances, and they are able to defend their qualifications if necessary. Generally, broad-based accounting, auditing, economic, financial and forensic qualifications can serve as the foundation for expert witnesses' qualifications and experience. In other instances, unique industry experience, prior work experience, or specialized skills may be required to qualify a practitioner as an expert witness. The legal requirements related to providing expert testimony are detailed later in this chapter.

b. Exercise Due Professional Care and Planning

Practitioners are required to exercise due professional care in the performance of their work. Due professional care requires practitioners to exercise diligence and critically analyze all work performed.²⁰⁸ When serving as an expert witness, the work of the practitioner will likely be scrutinized to determine its reliability and relevance for use by the trier of fact. Therefore, practitioners should carefully evaluate all principles, methodologies, facts and assumptions used in the economic computations and analyses performed. To exercise due professional care, practitioners must properly plan their work, supervise the performance of staff working under their direction, and obtain sufficient relevant data to provide a reasonable basis for any findings, observations, opinions, conclusions and recommendations.

Proper planning guides the practitioner's conduct, supervision, control and completion of an engagement. The litigation process is dynamic, and changes to work product and reports are generally not documented for discovery reasons. As such, proper supervision is critical in ensuring quality performance. The level of supervision will vary depending on the number of staff, their experience and qualifications, and the complexity of the engagement; ultimately, the practitioner is responsible for the work performed.²⁰⁹

c. Obtain Sufficient Relevant Data

The practitioner is required to obtain sufficient relevant data to provide a reasonable basis for any findings, observations, opinions, conclusions and recommendations. Sufficiency is a measure of the quality and quantity of the relevant data obtained by the practitioner, as well as its admissibility under applicable rules of evidence.²¹⁰ Relevance implies that the data used by the practitioner can reasonably be linked with specificity to case facts.²¹¹ Data refers to the evidence produced during the discovery process, the nature and extent of which may vary.²¹²

The practitioner is required to maintain adequate documentation of the procedures applied, the information obtained and the conclusions reached. Such documentation may include results of research, analyses and work paper documentation (including emails, memos to file, spreadsheets and correspondence). While the determination of what documentation to retain is a matter of professional judgment, all documentation fundamental to the practitioner's conclusions and judgments and on which he or she relied in reaching the opinions offered should be retained. ²¹³

3. Rule 1.310.001 and 2.310.001: Relationship with the Client

Rule 1.310.001 of the AICPA Code of Professional Conduct addresses the distinctive nature of consulting services and how agreements with the client may establish valid limitations on the practitioner's performance of services. Rules 1.310.001 and 2.310.001 requires the practitioner to: (1) serve the client's interests with integrity and objectivity; (2) establish an understanding with the client regarding the responsibilities of the parties and the nature, scope and...