Skills Used in Litigation Services

By Cohen, Morton M.; Crain, Michael A. et al. | Journal of Accountancy, September 1996 | Go to article overview

Skills Used in Litigation Services


Cohen, Morton M., Crain, Michael A., Sanders, Arthur, Journal of Accountancy


CPAs need to develop special expertise to succeed in a challenging niche.

A CPA providing litigation services contributes professional assistance to lawyers in the litigation process. These services may include damage computations, financial analysis and expert testimony. Providing such services can be rewarding, but it is also challenging and demanding: The practitioner must be able to communicate complex ideas convincingly in simple terms, possess well-rounded technical skills and function in a pressure-filled environment. CPAs must not only possess skills unique to litigation services but also be able to testify convincingly--and the lawyers who hire CPAs must be comfortable with the CPA's skills. CPAs may already possess many of the relevant skills and can develop other skills from a variety of sources. This article discusses training in a variety of fields and how expertise in each of these fields makes the CPA more proficient and marketable in this niche.

FUNDAMENTAL EDUCATION

Much of the knowledge used in litigation services is available from undergraduate and graduate courses in accounting. Continuing professional education and work experience also are good sources. Traditional accounting education that is most relevant to litigation services includes the following items. (They generally are included in accounting programs. However, schools rarely teach the application of these areas to litigation services, so further education may be required.)

Financial and investigative accounting. As an expert witness, a CPA may have to analyze and interpret financial statements and information. Accordingly, the practitioner should have sufficient knowledge in financial accounting. Some examples:

* When a CPA performs a business valuation, he or she often analyzes and adjusts the balance sheet and income statement to reflect economic factors. If the accountant was retained to search for fraudulent transactions, knowledge of the relationships between general ledger accounts might narrow the CPA's search.

* Some assignments require the CPA to provide forensic or investigative accounting services. A bankruptcy case may require a search for preferential transfers or fraudulent conveyances. A search for perquisites paid by a closely held company may be necessary in a divorce case to determine the real income of the parties.

* Procedures used in fraud engagements are similar to investigative skills employed by auditors.

* Sampling techniques are used in some cases to develop costs for damage computations.

Cost accounting. The litigation services practitioner preparing a damage computation or lost-profits analysis often applies cost accounting theories. For such engagements, variable costs, as opposed to fixed costs, are frequently deducted from lost revenues to arrive at lost profits. A CPA should have a knowledge of cost accounting when the litigation involves a company in an industry that uses it, such as manufacturing, construction or defense contracting.

Taxation. In marital dissolutions, CPAs may be asked about the tax effects of alimony, child support, property allocation and distributions from pension plans. Bankruptcies involve complex tax issues, such as the forgiveness of debt. Also, a portions of certain types of court awards are nontaxable under some circumstances.

OTHER TRADITIONAL EDUCATION AREAS

These areas are not necessarily part of an accounting course of study, but many CPAs may already be familiar with these subjects from undergraduate or graduate work.

Economics. Business appraisals require the consideration of micro- and macroeconomic principles, such as the nature of the economy and the competition affecting a specific company. Lost-profit computations usually require the determination of what profits would have been if a specific event had not occurred. Consequently, the practitioner may need to consider economic trends that occurred before and during the damage period. …

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