Reviewing the role of expert witnesses

Experts come from a broad range of occupations, but as a KPMG Forensic survey shows, accountants are by far the most commonly retained

By James McAuley

*This is an expanded version of a summary originally published in the March 2010 issue of CAmagazine.

Accountants have long held an important position in litigation in Canada. As individuals possessing special education, training, qualifications and experience, they may be qualified by courts to provide their professional opinion as evidence. While opinion evidence is generally not permitted in courts (usually only factual testimony is allowed), the expert’s opinion is a valuable resource to assist the court with complicated or technical matters that are not within the understanding of the typical person.

However, the role of the expert witness is not without controversy. Too often, there are allegations that an expert has not been independent and objective, but rather has acted as a biased advocate for the party who retained him or her. When this happens, the expert is not assisting the court; he or she will be, in fact, a hired gun.

This concern, when combined with a proliferation of expert evidence, has led to recent changes to the framework and rules related to the use and conduct of expert witnesses in Canada. In January 2009, Nova Scotia introduced new rules regarding expert witness reports and related matters. On January 1, 2010, new requirements for expert witnesses came into force in Ontario through revisions to the province’s Rules of Civil Procedure.

In Nova Scotia, an expert witness is now required to formally state in his or her report that the opinion provided is objective and for the assistance of the court. The new Ontario rules codify that an expert must provide fair, objective and non-partisan evidence that is within his or her area of expertise. Case law provides that these same high standards are expected and required in all other Canadian jurisdictions.

Given these rule changes, KPMG Forensic conducted its 2009 survey of Canadian litigators. This survey was conducted between May and July 2009 and responses from 196 experienced litigators from across Canada were received. Following is a summary of the results.

Retaining an expert accountant
Experts come from a broad range of occupations but accountants are the most commonly retained. Seventy percent of respondents had retained an accountant to assist with litigation in the past three years. Furthermore, 51% of litigators had retained business valuators (who are usually also accountants). That said, an accountant’s expertise is required on relatively few files. Two-thirds of respondents said they had retained accountants on fewer than 25% of their cases.

The most common designations of accountants retained are chartered accountant (CA), chartered business valuator (CBV) and investigative and forensic accountant (CA•IFA). We found the high ranking of CA•IFAs interesting in that this relatively new designation has been awarded to only about 240 people in Canada.

Working with the expert accountant
Expert accountants are involved in a wide range of litigation support activities, including review of expert’s reports (91% of litigators required this assistance); assisting with oral and documentary discovery issues (75%); assisting with electronic documents (43%); and attending mediations (25%).

Standards that govern the conduct of expert witness services by accountants have been established by the Canadian Institute of Chartered Business Valuators (CICBV) and the Canadian Institute of Chartered Accountants through its Alliance for Excellence in Investigative and Forensic Accounting (IFA). These standards provide a quality and performance framework for expert accounting work and can be important when an expert’s opinion is to be challenged. Forty-nine percent of respondents were somewhat knowledgeable about these standards while 15% had no knowledge of their content or existence.

Written reports are the tangible output of often extensive and detailed work by accounting experts. The quality of written reports is the most important criterion when lawyers decide which expert to retain (64% of lawyers). Thus, it is not surprising that reports are closely reviewed by counsel prior to their issuance. We asked counsel whether they had in the last three years requested that an accounting expert make “significant” revisions to a draft report. While a majority had not requested such a change, we were surprised that such alterations had been requested by 27% of respondents.

Performance of expert accountants
It was gratifying to learn that expert accountants received high marks for their knowledge, work and professionalism. A large majority of respondents agreed that expert accountants they had used possessed strong technical skills (84%), a strong understanding of the legal process (72%), strong reporting writing skills (71%) and strong testifying and/or oral skills (66%). These results speak highly to the quality and extent of the training expert accountants undergo, often through the CICBV and IFA.

Independence and objectivity is very important in the court setting as emphasized by the new rules concerning experts in Ontario. Accountants ranked high on both of these attributes. Eighty-five percent of respondents agreed that the experts they had used had been objective and 82% agreed that the accountants had been independent.

However, it is disturbing that only 43% of respondents thought the expert accountants they had retained in the past three years had not acted as an advocate. Taking the side of the party in litigation that retained the expert is inconsistent with the expert’s role. It is this perception of advocacy, or even bias, that the new Ontario rules are intended to address. The message from this is clear: experts need to ensure that the perception of advocacy is eliminated. Otherwise, the usefulness of experts in assisting the court is significantly diminished.

The ultimate measures of satisfaction with an expert may most easily be measured through two simple issues: value for money, and whether the same expert would be used again. Counsel was not definitive on the issue of costs (49% agreed that the expert accountant provided good value for money) and this must be a concern for experts. However, there was no hesitation on their overall experience with accounting experts retained: 83% agreed they would consider using the same expert again.

In the end, expert witnesses are intended to assist in advancing the course of justice. In order to do so, they must consistently exercise care to ensure they stay within the bounds of their expertise and provide unbiased and independent opinions and evidence. The KPMG Forensic survey shows that accountants and the art of the opinion are essential in the Canadian legal system.

For full details of the survey click here or email jmcauley@kpmg.ca and request a copy of the survey.

James McAuley, CA•IFA, CBV, is a partner with KPMG LLP and a senior vice-president of KPMG Forensic Inc. He has practiced in the area of forensic and investigation accounting for more than 22 years