David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting, and marital dissolution services in Philadelphia and the Delaware Valley.
Expert witnesses who are called to testify in litigation are not – contrary to what some people believe – supposed to be advocates for the side that hired them, but rather serve as independent experts applying their education and experience to the matter.
It should, instead, be the client’s attorney who serves as the advocate for his or her client, said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.
Forensic accountants, business valuators, and CPAs engaged as expert witnesses are subject to professional standards that generally require them to maintain their independence (there are some exceptions, such as those related to preparation of tax returns). Additionally, expert witnesses also may be required by certain government regulations to maintain their independence.
In discussing independence, Anderson, a Certified Fraud Examiner who recommends every organization enact a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley, said the professions generally identify two sub-categories of independence:
- Independence in fact, and
- Independence in appearance.
Independence in fact refers to the expert’s mental attitude regarding the matter. It most often reveals itself in the expert’s reports and/or testimony. It should not matter which side has engaged the expert. The expert’s conclusions should be the same (subject to certain assumptions).
However, the expert’s independence could be called into question if:
- The expert has made certain assumptions (at either the request of the client or the attorney) that clearly are unreasonable, and which benefit the side that engaged him or her. For example, if the expert has assumed a mature business would have been able to grow its revenues at a 20 percent rate solely from its existing products for each of the next 10 years or has assumed employees would accept a 50 percent wage decrease for the next ten years.
- The expert asserts, without providing any corroborating evidence, certain questionable actions of the side that engaged him or her were reasonable. For example, testifying that certain funds improperly taken by an employee without authorization were advances on his or her inheritance because the employee expected to eventually inherit the business.
Independence in appearance, said Certified Fraud Examiner Anderson, refers to how an uninterested third party might view the expert’s independence considering certain facts. For example:
- Does the expert have a financial stake in the side that engaged him or her?
- Does the expert have a familial relationship with anyone on the side that engaged him or her?
- Is the expert currently performing work for the attorney on another matter or does the expert have an ongoing working relationship with client that engaged him or her?
- Is the expert owed money by the side that engaged him or her? If so, is it possible that the expert’s report or testimony could be affected by the potential of non-payment in the event the client does not like his or her conclusions or testimony? This is one of the reasons Anderson said he requires upfront retainers and payment in full prior to releasing a draft report or testifying.
- Does the expert have, or has the expert had, a past adverse relationship with one or more of the parties or attorneys on the opposing side?
- Has the expert agreed to make certain changes to his or her report or proposed testimony due to pressure or specific direction from either the attorney or the client? This also touches on the concept of making unreasonable assumptions. A recent prominent Federal Tax Court case – Exelon Corp v. Commissioner – was lost, in part, to the expert doing just that.
- Is most of the expert’s work performed for either plaintiffs or defendants – the so-called “hired gun” – and not a balance of both?
Independence is a critical aspect of being an expert witness. The decider of fact – whether a judge, jury, or arbitrator – often will consider the expert’s independence in deciding on the credibility of the expert. As a result, expert witnesses must be independent in both fact and appearance.
If you are involved in, or are anticipating, a legal proceeding, either as a plaintiff or defendant, make sure you have an expert witness who truly is independent. David Anderson is a Certified Fraud Examiner with experience providing forensic accounting services in Philadelphia and the Delaware Valley.
If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at firstname.lastname@example.org.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson is a forensic accounting expert who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner, and a Certified Valuation Analyst.
NOTE: David Anderson’s forensic accounting blog will be on hiatus through the holidays and the beginning of the new year; it will return on Monday, January 11, 2021. Have a safe and enjoyable holiday season!