Hiring a Forensic Accounting or Business Valuation Expert: What You Need to KnowReprinted from the New York Law Journal
Complex commercial litigation often requires an expert(s) to provide objective expert opinions covering a broad range of topics including commercial damages, lost business value, forensic analysis including tracing of funds, fraudulent financial reporting, findings in a fraud investigation (e.g., embezzlement), interpretations of generally accepted accounting principles (GAAP), applications of generally accepted auditing standards (GAAS), post-M&A disputes, and shareholder or partner disputes. Given the wide range of professional credentials understanding how to determine which expert is best suited for your matter can be a daunting task. As every litigation matter is distinct with its own set of circumstances, there is no set checklist that will assist an attorney in selecting an accounting expert based on his/her educational background, business experience, industry experience and credentials. However, the following guidance is intended to provide some clarity in evaluating an expert’s credentials and how they may fit in with a particular area of expertise an attorney requires for a particular matter.
Individuals holding the following credentials are required to have achieved a certain level of education, relevant experience, pass an examination and meet an annual continuing professional education (CPE) requirement. The details of each of these requirements is included on publicly available websites as referenced below.
Certified Public Accountant (CPA) - CPA licensing requirements vary by state and require an individual to pass the Uniform CPA exam. Licensing authority and professional standards for CPAs fall under the jurisdiction of each State’s Board of Accountancy in which a CPA practices. A CPA may provide services in traditional areas such as accounting, auditing and/or tax as well as in specialized areas such as forensic accounting and business valuations. Although not required, CPAs may be members of the American Institute of Certified Public Accountants (AICPA) and/or a state society such as the New York State Society of CPAs (NYSSCPA), each having their own professional standards. CPAs can be valuable in various litigation matters including those that require the analysis or reconstruction of books and records, an assessment of GAAP in connection with contract disputes or fraudulent financial reporting, matters dealing with assessing the application of GAAS and other areas requiring accounting, tax and/or auditing expertise. CPAs who provide services as experts in litigation settings typically have other credentials as noted below.
Fraud and Forensics
Certified Fraud Examiner (CFE) – The CFE credential is issued by the Association of Certified Fraud Examiners, which is “the world’s largest anti-fraud organization.” “The CFE credential denotes proven expertise in fraud prevention, detection, and deterrence. CFEs are trained to identify the warning signs and red flags that indicate evidence of fraud and fraud risk.” CFEs have varied backgrounds including law enforcement, accounting, law and government.
Certified in Financial Forensics (CFF) – The CFF credential is granted by the AICPA to CPAs specializing in the field of forensic accounting. “The CFF encompasses fundamental and specialized forensic accounting skills that CPA practitioners apply in a variety of service areas, including: bankruptcy; electronic data analysis; family law; valuations; fraud prevention, detection, and response; financial statement misrepresentation; and damages calculations.”
Master Analyst in Financial Forensics (MAFF) – The MAFF credential is issued by the National Association of Certified Valuators and Analysts (NACVA), for professionals who provide financial forensic support services. The specialized areas of focus for an MAFF include commercial damages and lost profits, matrimonial litigation, bankruptcy, insolvency and restructuring; business valuation in litigation, business and intellectual property damages, forensic accounting and fraud risk management.
Business Valuation – Professionals who specialize in business valuations for litigation, tax and/or transactional settings, often have at least one of the following credentials which are widely recognized among business valuation experts. Business valuation experts may also have degrees in accounting and/or finance.
Accredited in Business Valuation (ABV) - The AICPA issues the ABV credential to CPAs who specialize in business valuations, meet certain educational and experience requirements and have passed the ABV exam.
Accredited Senior Appraiser (ASA) - The American Society of Appraisers issues the ASA and Accredited Member (AM) credentials to professional appraisers who meet certain education and business experience requirements, pass the ASA exam and submit an appraisal report for approval. The ASA offers six specialty disciplines: (i) Appraisal Review and Management, (ii) Business Valuation, (iii) Gem and Jewelry, (iv) Machinery and Technical Specialties, (v) Personal Property, and (vi) Real Property.
Certified Valuation Analyst (CVA) - NACVA issues the CVA credential to professionals who specialize in business valuations, meet certain educational and experience requirements and have passed the CVA exam and complete a case study or submit an actual Fair Market Value Report.
Chartered Financial Analyst (CFA) – The Chartered Financial Analyst Institute issues the CFA designation to professionals who have knowledge, skills and experience for investment analysis and management in global markets. A CFA’s body of knowledge is comprised of (i) ethical and professional standards, (ii) quantitative methods, (iii) economics, (iv) financial reporting and analysis (v) corporate finance (vi) equity investments, (vii) fixed income, (viii) derivatives (ix) alternative investments, and (x) portfolio management and wealth planning.
Roles of the Accounting or Valuation Professional - Consultant or Expert Witness
When hiring an accounting or valuation professional, an attorney should consider whether the professional is being hired as a consultant and/or as an expert. A consultant can be retained to advise about facts, discuss issues, and assist with strategy, among other areas. Usually, if the consultant is engaged by the attorney, the consultant’s work will be protected from discovery by the attorney work product doctrine. The role of consultant can change to that of an expert witness whereby the professional is formally designated to render an opinion before a trier of fact. As an expert witness, the professional’s litigation-related work may be required to be produced to opposing parties.
In sum, when searching for a forensic accounting or business valuation consultant or expert, there are many factors to consider which include the expert’s education, work and industry experience, and credentials, as well as other factors. The above list provides some of the more common credentials experts have earned that distinguish themselves from other professionals in the litigation arena.