Expert Accounting Reports: Opinion or Facts?
I usually submit 20 or more final expert accountant’s reports each year for use in different disputes that are heading for criminal or civil courts. Some reports are produced in a matter of days or weeks, others can require involvement over a number of years with many 100s of hours work needed.
The word “expert” is bandied about freely within the criminal and civil dispute arena. Those that enlist the services of an expert witness have varying expectations and the results that they receive can depend on the nature of the case and the particular expertise being sought.
For example, a medical expert may be asked to give an opinion on the ability of an injured party to perform work at some point in the future. This is an opinion that the expert can hopefully give and which is based on his or her extensive experience of similar injuries that can be compared to the circumstances of the current case.
It is likely that the medical expert will express an opinion as a percentage likelihood (say 75%) that the injured party may be fit for work at some point (say in a year’s time). In this way the Court is better able to decide the limit of any compensation that might be due for the injuries received. I believe that an expert accountant’s report normally fulfils a different purpose.
An expert accountant’s report is not the same as that of a medical expert
Although the medical expert’s opinion may be based on the incidence of similar cases resulting in recovery to reasonable health within similar periods of time, it is not based on complex calculations and is by comparison a true “opinion” of a (hopefully) suitably experienced practitioner. The instructing party would expect the medical expert to be very familiar with the injury in question as a result of his regular daily medical activities. Such a medical opinion can never be a “precise” opinion.
When I first began accepting instructions as a named expert accountant, I quickly realized that I didn’t want to be cross examined with questions I couldn’t answer or worse, didn’t want to answer! The perennial tale told by sage experts swapping tales around the roaring fire is the crucifixion by barrister of an expert accountant who had prepared a report supporting the negligence of a leading firm of auditors in a case involving the bankruptcy of a large multinational company. When asked by Rumpole of the Bailey how many audits of big businesses that the expert had been involved in he collapsed into a defeated heap saying “none”.
I think that this fictional expert (and I have observed other witnesses suffering in this way) made the mistake of concluding in his report that an audit firm had been negligent. That is an opinion that must be reserved for the Court. If the expert had been experienced in the audit process and the relevant regulatory guidelines, he might have been able to present certain acts or omissions of the audit firm that were contrary to best practice, thus allowing the Court to decide that there had indeed been negligence.
Most forensic accounting requires the investigation of business and financial activities carried out by persons who had either criminal intentions or who were negligent. In addition to determining the value of any loss or theft, the instructing parties may want to demonstrate criminal intention or negligence. They will enlist the assistance of an expert accountant in the process. The task of the expert witness is not to determine guilt, and so must limit input to setting out the facts in such a way that the recipient of any report can see a clear picture and immediately decide for themselves. Deciding guilt is a job for judge and jury, and therefore an expert accounting report must convince the reader to make their decision if indeed the facts dictate this to be the case.
If after forensic examination of a set of bank statements it can be shown that an accused person has received twice as much money as can be explained by all legitimate sources of income including loans and gifts, then it is pretty certain that he must be guilty of theft. However, the expert accountant would limit his work to showing that the accused had received money from an unknown source (better still if the excess money can be traced to the stolen funds by matching bank note serial numbers or tracing electronic transactions). Seeing this information, those sitting in judgement can better determine innocence or guilt.
Forensic Investigation – v – Expert Witness
This contrasts somewhat with the medical expert who might be asked to give an opinion as to whether a person was fit to work when claiming supplementary benefit. If the opinion is “yes” he was fit – this is just about the same as saying that the individual was “guilty” of benefit fraud. Moreover, it is hard to challenge the expert evidence without producing a different expert witness who might express a different opinion simply based on their different work experiences.
The main thrust of my own work as a forensic accountant specializing in fraud, money laundering and tax evasion is to present the precise details of any case clearly and concisely in order that the headline facts and figures can be readily understood – usually by non accountants or businessmen. My work can involve investigating and calculating how much money has been stolen, how much tax evaded and how much cash has been laundered. It can highlight the weaknesses of the regulatory systems that allow the transgressions or it can highlight the relative involvement of the participants in the activities taking place. My work may have the effect of pointing the finger of guilt or negligence by setting out the facts – but it is for others to make this decision in the end.
This is one of those grey areas, where the challenge for the expert is to gather together the facts in such a way that the message is clear, without overstepping the mark by encouraging the onlooker one way or the other. Given that the expert witness must be completely impartial and independent of either side in any argument, it can be argued that they should steer clear of opinions as much as possible. In fact, if you look at my recent portfolio of cases over the past 12 months, most of the assignments fall into the following broad categories:
- Calculation of unpaid tax for disclosure to HMRC
- Calculating the value of assets missing, owned or dispersed
These instructions involve detailed and often complicated analysis resulting in specific results, and contrast with other jobs that I and other forensic accountants may be asked to carry out, including the valuation of a shareholding in a privately owned (i.e. unlisted) company. As in the case of the medical expert, such work requires extensive experience in order that an assets value can be presented – because valuations are always theoretical until an actual sale takes place. Thus deciding on whether to use a multiple of profits of 5 or 10 is a decision based on experience and may only lead to a range of values being proposed.
There are times when an expert accountant must provide an opinion
I may be asked to explain a system of money laundering to the Court, saying why it is (or is not) appropriate to compare it to the circumstances of the case. Such work relies on my experience of working with other similar cases, in order that I am able to present an opinion to the Court. There is no sifting of data – an opinion of the nature of the circumstances is being sought.
In conclusion, an expert witness has a duty to assist the Court. The main way it can do this is to ensure that the facts are being understood properly by all parties. Much of my work has been to consider the evidence and present it in such a way that the onlooker understands the matter and can make an informed decision regarding quantum, blame or guilt. It is my “opinion” that if this can be achieved without the expert providing any unsubstantiated comments or opinionated narrative, then so much the better.