A Closer Look at AICPA Standards in Litigation

The American Institute of Certified Public Accountants (AICPA) has established professional standards for its members for over 100 years. Some of its newest standards guide CPAs when providing litigation support services.

Rules for Compliance

These standards outline procedural and reporting requirements for CPAs to follow, which, in turn, assure clients, attorneys and triers of fact that an expert's work will be technically sound, relevant and free from undisclosed conflicts of interest. The standards apply to CPAs who are members of the AICPA or who are licensed in states that adopt AICPA standards.

Consulting and Valuation Standards

The primary standards that apply to a CPA expert witness include:

CS Section 100. Litigation support is just one of many services covered under Statement on Standards for Consulting Services (CS) Section. 100, Consulting Services: Definitions and Standards. Consulting encompasses a broad range of engagements including:

CS Section 100 is a relatively short, principles-based standard that has no specific reporting requirements. Instead, it provides general language for CPAs to use when communicating findings to clients.

Experts normally communicate with clients and their attorneys with written reports or verbally during face-to-face meetings. The proper format is a matter of professional judgment. The CPA and client typically agree on the format before commencing work.

VS Sections 100 and 9100. CPAs must follow Statement on Standards for Valuation Services (VS) Sections 100, Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset, and 9100, Valuation Services Interpretations of Section 100, when they "perform an engagement that estimates a value resulting in an expression of either a conclusion of value or a calculated value."

For example, VS Sections 100 and 9100 apply in appraisals prepared for business combinations, financing, taxation, strategic planning and litigation. VS Section 100 also includes a glossary of valuation terms to help CPAs more effectively and efficiently communicate with clients and other parties who rely on valuation reports.

This standard doesn't apply to the determination of economic damages unless the calculation includes a value estimate. Value estimates that are part of audit, review or compilation engagements are also exempt from VS Section 100. An exception to the reporting requirement is permitted when valuing business and other assets for litigation purposes.

The AICPA recognizes that the format and scope of an expert's report is largely a matter of attorney preference, which varies depending on the specifics of each case. Regardless of the report's format and scope, however, CPA experts must continue to follow applicable development standards, which preserve their credibility and objectivity.

When in Doubt, Follow the Rules

When in doubt, experts should follow CS Section 100 and VS Sections 100 and 9100. Although a non-CPA expert might not be required to follow the AICPA standards, a CPA who fails to follow these rules could be excluded from testifying.

The AICPA issued these standards to improve the consistency, quality and transparency of consulting and valuation engagements. By using what the AICPA considers "generally accepted best practices in the valuation and business communities," CPA experts are well-equipped to withstand Daubert challenges.

Association You Can Trust

The AICPA has a strong, established reputation for protecting the public's financial interests. CPA experts that follow the AICPA consulting and valuation standards in litigation matters can leverage off the AICPA's brand name, which has become synonymous with excellence, ethics, objectivity and trust.

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