Magazine article The CPA Journal

Federal Rules of Evidence and the Financial Professional: Greater Control in the Courtroom on Testimony by Experts

Magazine article The CPA Journal

Federal Rules of Evidence and the Financial Professional: Greater Control in the Courtroom on Testimony by Experts

Article excerpt



PAs and consultants are increasingly requested to act as expert witnesses at trials and in other dispute resolution forums. They give testimony on financial and business transactions and on damages suffered as a consequence of the alleged actions of the defendant. Recent Federal court decisions and proposed changes to the Federal Rules of Evidence will have a profound effect on how experts form and support their opinions. Other proposed rule changes will affect CPAs and consultants who are fact witnesses for clients but will also express opinions on the validity or reasonableness of the client's actions.

These decisional and statutory refinements to existing evidentiary rules have their genesis in the "junk science" and improperly supported opinions that were commonplace in the late 1980s and early 1990s. The use of novel and unrecognized methodologies, or unrealistic and speculative assumptions, has been cited as the basis for the courts' refusal to admit an expert's opinion. The decisions excluding opinion testimony based on its competency include cases involving the proposed opinion testimony of CPAs and consultants, as well as medical testimony in personal injury cases. Indeed, a real danger exists that the courts, in precluding an accounting expert's testimony, could limit the types of issues considered within the expertise of a CPA or financial consultant. Unless the profession adopts its own standards for preventing unreliable expert testimony, the law could be changed to adversely affect the entire profession based upon the inferior work of one or a few individuals.

Expert Opinion Before and After Daubert

The application of the Federal Rules of Evidence on expert testimony has received widespread attention over the past few years because of the Supreme Court's decision in Daubert v. Merrell Pharmaceuticals Inc. In it, the Supreme Court charged U.S. district court judges (trial judges) with the responsibility to act as gatekeepers to exclude unreliable expert testimony.

Prior to the Supreme Court's decision in Daubert, the only questions regarding the admissibility of expert testimony were whether such testimony would likely be of assistance to the trier of fact and whether the individual offering that testimony was an expert. With respect to the latter issue, if the offering party could provide evidence that the proffered expert had special knowledge in the field through education, training, or experience, the expert was deemed to be qualified, and his or her opinion became admissible irrespective of its scientific basis.

This became a serious problem in medical malpractice and product liability cases in which expert testimony without any scientific support was routinely admitted into evidence, often with disastrous results. The breast implant cases were a clear example of this phenomenon, as subsequent scientific studies have proven that there is no causal relationship between breast implants and many, if not most, of the medical complaints attributed to them. The Supreme Court's decision in Daubert was intended to put an end to junk science in the courtroom.

Daubert introduced a nonexclusive list of criteria for Federal judges to use when assessing the reliability of scientific expert testimony. The criteria included in Daubert are as follows:

Whether the expert's technique or theory can be or has been tested, i.e., can the expert's theory be challenged in some objective manner, or is it simply a subjective, conclusory approach that cannot reasonably be assessed for reliability; Whether the technique or theory has been subjected to peer review and publication;

The known or potential rate of error of the technique or theory when applied; The existence and maintenance of standards and control; and The degree to which the technique or theory has been generally accepted in the scientific community. …

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