NEWSLETTER

Deposition Tips for Fact Witnesses

While most of Jeff Compton's testimony takes the form of presenting expert opinions, he was recently a fact witness in his capacity as a trustee. Some observations about fact witness preparation come from that experience. These obviously do not replace the attorney's judgment and skills in the area but represent one experience.

Recalling important facts under the pressure of questioning is difficult but made easier by organizing key documents such as pleadings and agreements into a binder with a table of contents and tabs. Referring to the documents is more accurate than trying to recall their details. Keeping the documents in date order, summarized by a table of contents, facilitates the recall of events in sequence.

Being asked for opinions of value as a fact witness is difficult. Even if one is capable of doing so, sufficient work to come to a conclusion may not have been performed. Looking at relevant facts as an indication, not conclusion, of value is more accurate in these circumstances. For example, the witness, while potentially an expert in the area, has not considered all the relevant facts to form a conclusion. Accordingly, absent having performed sufficient work or possessing the skills to form an opinion, the fact witness could agree or disagree with that indication of value, pending additional analysis and the reports of an expert

As with all our short items in the Newsletter, we welcome the opportunity to explore how one would apply them to specific facts, please call us to do so.

Peer Review for CPAs

CPAs who prepare financial statements are generally required to undergo peer review. The process involves an independent reviewer coming in and "grading the papers" of the firm; checking its system of quality control and the compliance of its issued financial statements to professional standards. The purpose is evaluation of the quality control measures as well as the adequacy of compilation, review and audit reporting by the subject firm. http://www.aicpa.org/centerprp/publicfile01.htm provides the detailed results of peer reviews and is searchable by firm. The disclosure detail as to firms providing audits of public companies will be extended to all firms for reviews after January of this year.

Licensed public accounting firms that prepare financial statements are required to undergo annual or tri-annual peer review. For firms with public company audit work, a considerable amount of data on firm quality for 30,000 firms in all states is available at the above-referenced site. This data has been more restricted for smaller firms but now has been expanded for reviews beginning in 2005.

Proposed Standards for Valuation Services

In response to the growing number of CPAs providing business valuation services, while credentialing them to do so, the American Institute of Certified Public Accountants is circulating proposed standards for valuation services. These are similar in scope to those provided by the Appraisal Foundation for ASA members. These standards will become binding on AICPA members when they are issued in final form. More importantly, most state boards regulating public accounting require compliance with AICPA professional standards. This means CPAs whether they work for a licensed CPA firm or a non-licensed consulting firm will be subject to the standards. The standards may be viewed at http://www.aicpa.org/download/exposure/ED_SSVS_Business_Valuation.pdf. We offer selected highlights and encourage anyone with an interest in opinions of value offered by CPAs to read the draft and consider commenting upon it to the AICPA.

While the proposed standards exclude opinions from experts in litigation matters as to lost profits, they include opinions as to the lost value of a business.

The standards may catch some tax practitioners off-guard because they include certain values used in tax returns such as discounts and non-publicly traded stocks. (See Appendix at Q. 7. et seq)

Three levels of service are contemplated: they are in descending level of detail; the detailed report, the summary report and the calculation report. The first two offer conclusions as to value while the third reflects an indication of value.

Of use currently in the discovery process and the development of expert opinions are the specific considerations listed in paragraphs 12, 13, 26, 28, 30, 31, 35-39, 44, 45, 47, 49, 54, 55, 56, 63-65, 67, 70, 73, 76 and 78.

Remarkably, contingent fees appear to be allowed (Para. 69 g.) although Texas and other states prohibit them as to CPA expert witnesses.

Hiring Experts, Reliance on CLE Presentations

In a recent opinion from the Southern District of Texas, the U. S. Bankruptcy Court addressed the requirements for disclosure of experts retained by a debtor and the perils of relying upon presentations made at conferences as authority. An expert was retained by a law firm, at least with the scope of assisting with mediation on behalf of a Chapter 11 debtor. The subsequent Chapter 11 trustee discovered the debtor paid the expert without retention or disclosure during the debtor-in-possession period and sought return of the funds. Counsel for the debtor argued a CLE presentation, in conjunction with case law, supported the payment. The court explained in detail the requirements for expert retention by debtors. Please contact us if you would like a copy of this opinion.

Internal Investigations, Computer Data Integrity

The increasing use of internal investigations using outside counsel and forensic computer experts should emphasize the need to safeguard electronic data at the outset of the investigation. Subject computers should ideally be immediately unplugged, without shutdown, (or if a server, shutdown,) photographed, then sequestered to a secure location so that the chain of custody is documented.

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If you would like to read more about us and the work we have done, please see www.jacompton.com.