Forensic Accountant as Expert Witness in Litigation: An Analysis

This report delves into the critical role of forensic accountants as expert witnesses in litigation, examining the relevant regulations, principles, and procedures that govern their practice. It explores the responsibilities of forensic accountants in providing financial expertise during legal proceedings, including the analysis of financial records and investigation of fraudulent activities. The report analyzes the regulatory framework, including case law and statutes, such as the Corporations Act 2001 and APES 215, which shape the conduct of forensic accountants in Australia. It discusses key principles like objectivity, materiality, and comparability, and how these principles influence the regulation of the field. The report also considers the importance of education, experience, and adherence to ethical standards, highlighting the need for forensic accountants to provide reliable and relevant testimony. Furthermore, the report provides insights into the purpose of regulations, emphasizing the need for cooperation between legal and accounting professionals, and ensuring the integrity of financial evidence presented in court. The report also examines the role of forensic accountants in various high-profile cases, such as the Enron case, to illustrate the significance of regulatory compliance and professional standards. The report concludes by emphasizing the importance of expert witness testimony in legal proceedings, and the role of the forensic accountant in maintaining the integrity of the financial system.

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FORENSIC ACCOUNTANT AS EXPERT WITNESS IN LITIGATION
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Forensic Accountant as Expert Witness in Litigation
Introduction
Forensic accountants are experts in examining financial records of organizations or
individuals with the aim of establishing evidence that could be utilized in litigation. The use
their accounting and forensic skills to investigate fraudulent practices such as money
laundering (Özkul & Pamukçu, 2012). Their skills is also much useful in tracing and
recovering missing financial and physical assets. The forensic accountancy profession is
highly demanding and also equally rewarding. A Forensic accountant should possess strong
analytical and problem solving skills. Majority of the investigations conducted by forensic
accountants culminate in to judicial proceedings and hence forensic accountants work closely
with legal professionals (Okoye & Gbegi, 2013). The forensic accountant acts as an expert
witness in litigation proceedings. Therefore, they are expected to conduct themselves with
greater professionalism compared to non-expert witnesses. This research shall discuss the
topic of forensic accountants as eye witness in litigation. These include the relevant
regulation that include case laws, statutes relevant to the role of a forensic account as an
expert witness in litigation.
What does Forensic accounting Involve?
Forensic accountants play a critical role in providing support during legal
proceedings. This involves the provision of assistance of an accounting nature in a matter
involving existing or pending litigation (Kelly, 2011). It’s scope in litigation involves
assisting in quantifying of economic losses. Therefore, a model litigation support assignment
would include calculating the economic loss resulting from a breach of contract by a party.
However, it is worth noting that it also extends to other areas such as valuations, tracing of

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stolen assets, recovery of revenues, accounting reconstruction and financial statement
analysis. The accountants work very closely with lawyers in matters such as contract
disputes, insurance claims, royalty dispute scrutiny, shareholders disputes and intellectual
property claims. Forensic accounting also involves investigative accounting which is
concerned with inquiry of issue of criminal nature (Jones, 2011). The common examples of
forensic accounting jobs include employee fraud, securities fraud, insurance fraud and
kickbacks. These kinds of fraud are common in government and in the private sector as well.
Commonly, both litigation support and investigative accounting are needed in every single
litigation assignment.
Why are accountants useful as witnesses?
The legal system is created to deliver justice as per constitutional and legal
requirements. It is mandated to solve disputes in a just manner in order to protect the rights of
all. The system also promotes proper social conduct, political and economic stability of
countries. Therefore, to achieve this objectives, there is need to work in collaboration with
experts in the areas of litigation. Forensic accountants are experts in areas of valuations,
taxation and financial fraud. Therefore, they are useful in the court of law in investigating
cases of money laundering, property conflicts, corporate fraud and other cases of financial
nature (Heitger & Greer, 2018). The judges presiding over the hearings are therefore able to
make conclusive recommendations based on the evidence presented to the court by the
forensic accountant. The parties to the case get a fair ruling on the size of bond and
punishment placed upon them. The judges will also get the benefit of hearing financial issues
presented to them in simple non-accounting jargon without loss of meaning since forensic
accountants are skilled in putting them in simple language.

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Relevant Regulatory Framework
The regulatory framework of the accounting profession has been influenced
considerably by the lessons learnt from the global financial crisis and significant corporate
collapses locally. Therefore, the legal requirements of auditors and accountants have been
geared to enhance disclosure and reduction of conflict of interest (Van Akkeren, Buckby
&Tarr, 2016). Proper detection and prosecution of legal breaches of financial nature largely
depend on proper execution of the forensic auditing role. However, Australian practitioners in
this discipline have no special minimum training requirements apart from the requirements
placed by the country’s professional accounting bodies namely Institute of Public
Accountants, CPA Australia, and institute of chartered accountants of Australia. . Therefore,
practitioners who are members of these professional bodies must comply with the ethical
standards set by these bodies. However, practitioners who are not registered with any
professional body do not have any professional oversight.
Heitger and Greer (2018) highlighted the education and experience that can propel
one to serving in the profession. The authors noted that the first step is obtaining quality
accounting education in traditional accounting especially with greater focus on cost
accounting, management accounting and auditing practice. The second step is obtaining a
minimum of two to three years of traditional accounting experience. The authors also
highlighted that knowledge in data analytics and mining is also a notable added advantage
and hence applicants with such qualifications are attractive to recruiters. Finally, on the
requirements, it is highly recommended that one obtains a supplemental education in forensic
accounting. With these education and experience and a membership to a professional body
chances of landing a job in the field are high.
In the case of Kumho Tire Co. v Carmichael (526 U.S. 137, 119 S. Ct. 1167, 1999),
the court held that proper education, professional, and litigation experience is an important

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factor for expert witnesses that include forensic accountants. The accountant must thus
convince the judge that he is an expert in area in which he is testifying and that the testimony
presented to the court is both reliable and relevant. For example, in the Enron Case which is
one of the most famous financial fraud cases that have ever existed. During the hearings
where many forensic accountants testified on behalf of their clients, there a huge variation in
the arguments made by each accountant. Some accountants cleansed activities that were not
in conformity to International Accounting Standards. Therefore, taking lessons from this
case, where accountants differed on the materiality of their similar subjects, it was clear that
there was need to regulate forensic accountants from selling their objectivity for money. It
also created the necessity to ensure that forensic accounts have adequate training in their area
of expertise to ensure that such variation in methods is limited.
In Australia, the common wealth regulations on financial and corporate practices
provides the major regulatory framework that determines how forensic accountants operate.
The profession in Australia also tend to rely on regulations of professional bodies and
consumer protection standards that are set at states level. The role of the regulations is mainly
to promote market competition and corporate governance.
The Corporations Act 2001 provided a legal strength to the Australian Accounting
Standards. The act was a positive move from the earlier self-regulating mechanism. The Act
upheld the role of Institute of Public Accountants, CPA Australia and Institute of Chartered
Accountants of Australia in carrying out oversight and ensuring adherence to proper
standards of discipline among accountants including forensic accountants (Bottomley, 2016).
The Australia’s code of ethics of professional accountants established the code of conduct
that guides the professional conduct of members of the above named accountancy oversight
bodies. This joint body ensured that irrespective of accountant’s affiliation, they all operated
under similar code of ethics.

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Principles and procedures of practice
APES 215 Forensic Accounting Services that was introduced in 2009 addresses the
standards of operations specifically for a forensic accountant. These includes professional
competency, expert witness, independence, professional fees and remedy for false
information. The standard instilled mandatory obligations on its registered members
providing expert witness services to do it in accordance to the regulatory standards. Expert
witness services in this case means being free from biasness through adherence to utmost
independence (Tricker & Tricker, 2015). In addition, the expert in conducting his roles must
use appropriate concepts of accounting valuations among other procedures. This calls for the
expert to continually update his knowledge on accounting procedures as they change with
time. The objective of this obligation that requires forensic accountants to offer expert
witness is to ensure that the reputation of the accounting profession is protected. In addition,
it ensures that the accused having the privilege to hire forensic accountants do not gain
competitive over those unable to hire such services.
APES 215 also imposes forensic accountants who provide their services subject to
legal requirements and restrictions to state the elements in their report. This reduces biasness
and misuses of the profession. The regulation requires members to be genuine to whenever a
duty falls outside their area of expertise. The body also provides the elements that should
mandatorily be presented to the court (Mishra & Singh, 2017). These include limitations to
the scope of the assignment, instructions received, opinions and conclusions that are not
based on forensic accounting knowledge, any relationships that might compromise
independence, assumptions underlying decisions conclusions made, restrictions to the use of
the report, and finally a statement that the investigations where done in accordance to APES
215.
Purpose of regulatory Guidelines

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The purpose of all these requirements set by regulatory bodies, Corporate Act and
APES 215 was to harmonize the forensic accounting role in litigation (Kumari, Tiwari &
Debnath, 2017). This ensured judges place outmost reliance and confidence in the reports
presented to the court by the expert witnesses. The guidelines were also meant to promote
cooperation between the players of the legal profession and forensic accountants. The
regulatory guidelines on the content and presentation of the report also ensures that there is
forensic accountants involved in litigation act only within their expertise and provide a report
that is has a uniform format such that comparability becomes possible (Beattie, Fearnley &
Hines, 2015). The education, experience and membership requirements is also emphasized to
ensure that forensic accountants in practice are adequately qualified and are regulated
accordingly to promote professionalism.
Although, the forensic accountant is expected to present his testimony objectively, the
judges have the duty to assess the reliability of the evidence. In the case of Daubert v Merrell
Dow Phramaceuticals (509 US 579, 133 SCt 2786, 1993), which is a case reference to date
as a matter of jurisprudence, the court provided a list of checks that should be made when
checking the reliability of testimony presented by expert witnesses. It supreme court held
that, testimony presented must be relevant to the issues under trial. But, the judge has the
final responsibility to make the final decision on whether the testimony is relevant and
reliable.
Principles that Underpin how forensic accounting as expert witness is regulated.
Forensic accounting plays an important role in litigation. Therefore, its regulation
requires objective consideration of the factors that lead to regulation and the effect of
regulation on provision of just hearing all. The principle of objectivity is a factor that impacts
how area is regulated (Buckhoff &Taylor, 2015). The aim of regulating the discipline is to
ensure that practicing professionals are objective and genuine in the use of their professional

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skills. The regulations seek to ensure that practicing forensic accountants investigate and
reveal information that is material to the case at hand without bias and abuse of their
profession.
The Principle of materiality is also essential in regulating forensic accountants as
expert witnesses. The regulations seek to prevent practitioners from hiding material
information which might change the outcome of the case. Therefore, APES 215 included the
requirements of the report presented by the experts to the court of law (Akkeren, Buckby &
MacKenzie, 2013). This was to ensure that accountants follow the regulations in drafting the
report. The aim is also to present the limitations and assumptions so that limited
misunderstanding is achieved between the judges and the expert witness. The disclaimer that
the expert makes that the report is created according to the requirements of APES 215 binds
practitioners to the regulation.
The principle of comparability is also a notable factor that determines how the field is
regulated. The regulations seek to ensure that forensic accountants use models widely
accepted in Financial, Cost and management accounting in their valuations (Braatvedt, 2014).
This promotes comparability and error checking such that irrespective of the forensic
accountant selected to witness in litigation, no material variation in valuations shall occur.
The regulations provides the forensic accountants with a way of self –regulation such that
there exists one right method for a single problem. This also helps in reducing biasness in the
conduct of professional activities.
In conclusion, the forensic accounting professionals play a significant role in
litigation. The harmonization of profession through regulations aid in creating greater
understanding between judges and the experts. Regulation also ensures that the industry is
fool proof and that witnesses do not collude with parties in the case to hide material facts.

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