5 Things You Need To Know About Your Financial Expert

George C. Swarts, CPA
Kimberly McCall, CPA

Once an attorney and his/her client decide they need to retain a financial expert, the selection process begins by determining criteria to choose the professional that will ultimately be engaged.  Here are five questions that should be asked when evaluating a financial expert:

1.       Is your expert in fact a financial expert?

2.       Does your expert have sufficient experience and does he/she understand how to comply with the requirements for admissible testimony?

3.       Does your expert understand the assignment and the measure of damages that relates to your case?

4.       How well does your expert communicate?

5.       Does your expert have objectivity and integrity?

To answer the first question, you will need to gather some initial information regarding your potential financial expert.  Upon request, each expert should be able to provide you with a resume including a list of cases.  The standard hourly fees charged by the expert may be obtained at this time also.  The resumes you have collected should enable you to determine if the candidates for your financial expert meet with the Federal and state rules for testifying experts and if the expert has the type of experience your particular situation requires.  For instance, an economist may be a financial expert, but if your case requires analysis of tax issues or forensic accounting, a Certified Public Accountant would be a better choice to address and opine on those matters.  Your expert’s qualifications should demonstrate to the trier of fact that he/she has the knowledge, skill, experience, training or education to testify in compliance with the requirements of the Court.

The next question addresses the financial expert’s ability: to base their opinions and testimony on sufficient facts and data; to provide testimony that is the product of reliable principles and methods; and to apply the principles and methods reliably to the facts of the case.  These requirements were specifically cited and set forth in the Daubert Case (William Daubert, et ux., etc., et.al., v. Merrell Dow Pharmaceuticals, Inc., No. 92-102) to determine if an expert’s testimony is admissible; and, The Federal Rules of Evidence were amended based upon this Case.  A financial expert should have an understanding of the criteria for admissible testimony in order to formulate the opinions used as a basis for his/her testimony.

Once you have established your financial expert’s credentials and knowledge, it is time to consider if your financial expert is qualified to complete your specific assignment and address any damage calculations or rebuttal, if necessary.  For instance, does your expert know the difference between amounts due under contractual terms, and damages due from breach of the contract?  If the facts indicate an alternative calculation of damages is appropriate, does your expert know the alternative methods accepted by the Court that should be used in the calculation?  Your expert should also be able to assist you in requesting the necessary financial documents that will support your client’s claims for damages.  Insufficient supporting documentation combined with an inappropriate method used to measure damages can be a recipe for disaster in the courtroom.  Your client could end up with a disqualified expert and no damages calculation or understated damages and a lower recovery amount.

If you needed to defense another expert’s report of damages, is your expert sufficiently experienced to issue an effective rebuttal report and explain his/her position to the court?

Your financial expert may have experience and be technically competent, but does the expert have good communication skills.  An expert must be able to communicate through clear and concise written reports and verbally.  Even though your financial expert may produce an excellent written report, the expert should also be able to explain the results and opinion so the trier of fact and/or jury can easily understand the facts and methods used that support the conclusions.  Also, it is important your expert has the necessary communication skills to interact with your client since, in most cases, confidential and sometimes personal information must be exchanged when the financial expert is gathering the information need for the expert report. 

And, finally, an expert that just re-states your client’s position and prepares a report quickly without performing procedures may seem like a good low cost alternative.  However, a cross-examination by a skilled opposing attorney or a rebuttal report thoroughly prepared by their expert may kill any benefits derived from the cost savings initially experienced.  An expert who does not challenge the financial data and other information in evidence deprives counsel of opportunities to be informed of both the strengths and weaknesses of their client’s case.  The perspective of an ethical, objective expert can be invaluable in assisting counsel in addressing issues, so they are well-prepared when taking testimony or negotiating in settlement conferences.

5 Tax Planning Tips for Small Businesses

Curtis G. Swarts, CPA
Ty Anderson

Small business owners are faced with a multitude of challenges in these tough economic times.  Now, more than ever, owners must pay special attention to their accounting records to ensure they take advantage of every available deduction.  The following is a list of five basic tax planning tips for small businesses:

Tip 1 – Business Structure

Choosing the correct business structure is critical for operations, liability protection, and tax efficiency.  Special consideration must be given to the type of entity created under state law and then determining the entity classification for federal and state tax purposes. 

Tip 2 – Defer Income and Accelerate Expenses

Typically, a cash basis taxpayer will benefit from deferring income into the following year and accelerating expenses in the current year.  Taxpayers can delay year-end billings where cash flow permits and prepay certain expenses to minimize their taxable income in the current year. 

Tip 3 –Retirement Plan

Retirement plans are an excellent tax planning opportunity for the company while providing a great benefit for you and your employees.  There are a variety of allowable retirement plans to fit your specific needs.  Most plans provide a tax deduction in the current year while deferring the actual contribution into the latter part of the subsequent year.

Tip 4 –Purchase Equipment

Many taxpayers are eligible to take advantage of special bonus depreciation and expensing of capital expenditures.  Businesses that anticipate purchasing equipment in the near term should consider making those purchases in the current year to minimize taxable income.

Tip 5 –Tax Credits

Taxpayers should be aware of the various tax credits available to small businesses.  Tax credits are generally much more advantageous than a deduction in many cases because they provide a dollar for dollar offset against your tax liability.