BEWARE OF THE LOOSE CANNON

Transcription

1 BEWARE OF THE LOOSE CANNON Experts Need to Prudently Apply Professional Standards October 26, 2016 Bryan Callahan, CPA, CFF, CFE, CVA Director Forensics & Valuation Services 1

2 TO RECEIVE CPE CREDIT Participate in entire webinar Answer polls when they are provided If you are viewing this webinar in a group Complete group attendance form with Title & date of live webinar Your company name Your printed name, signature & address All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar Answer polls when they are provided If all eligibility requirements are met, each participant will be ed their CPE certificates within 15 business days of live webinar STANDARDS What standards are out there? Which ones apply? 2

3 STANDARDS What is the difference between standards & guidance? WHAT STANDARD APPLIES? Certified Public Accountant (CPA) Business Valuation & Forensics work Daubert and Frye 3

4 DON T GO THERE Don t let your expert go off the deep end Ask the question, How does this comport with your standards? Attorneys Expert witnesses S S C S Statement on Standards for Consulting Services When did it come out originally? What did it replace? Whom does it affect? 4

5 SSCS Types of Services Consultation Advisory services Implementation services Transaction services Staff & other support services Product services GENERAL STANDARDS RULE Professional competence Due professional care Planning & supervision Sufficient relevant data 5

6 COMPLIANCE WITH STANDARDS RULE Additional general standards Client interest Understanding with client Communication with client AICPA CODE OF PROFESSIONAL CONDUCT Members assume obligation Important when you see an expert with credentials 6

7 AICPA CODE OF PROFESSIONAL CONDUCT Principles Responsibilities The public interest Integrity Objectivity & independence Due care Scope & nature of services OTHER STANDARDS AICPA Professional Standards AICPA Statement on Standards for Valuation Services No. 1 Professional Standards, National Association of Certified Valuators & Analysts American Society of Appraisers ASA Business Valuation Standards NAFE National Association of Forensic Economics Principles of Professional Practice Association of Certified Fraud Examiners CFE Code of Professional Standards 7

8 OTHER STANDARDS Many non-cpas not regulated or licensed by state government What if the expert had no credentials? That solves the issue; right? CALCULATING LOST PROFITS WITH REASONABLE CERTAINTY What is it? Seventh Circuit decision & points made Client-supplied information 8

9 CALCULATING LOST PROFITS WITH REASONABLE CERTAINTY Causation considerations Expert s role Case law New businesses Unique challenges What should expert consider? New business rule in federal cases Other considerations CALCULATING LOST PROFITS WITH REASONABLE CERTAINTY Applies to whole calculation & not just baseline or first year

10 COMMON METHODOLOGY FOR CALCULATING LOST BUSINESS PROFITS Don t assume because they are common, you can use whatever you want Think through which measurement applies best to circumstances of each case Confirm with counsel early in engagement WHAT ARE LOST PROFITS? Quantity of damage allegedly suffered by plaintiff Examples Breach of contract Business torts Breach of fiduciary duty Shareholder disputes Intellectual property dispute 10

11 WHAT ARE LOST PROFITS? But-for Alternative Focus is typically on profits & not lost revenues Exceptions Avoided costs or incremental expenses COMMONLY ACCEPTED METHODOLOGIES No one size fits all One-model approach Two-model approach Before-&-after method Yardstick method Sales projection method Market method 11

12 MODEL APPROACH One-model approach Two-model approach BEFORE-&-AFTER METHOD Analyzing growth rates before & after an alleged breach or action Book ends method Calculates what should have happened in the middle May apply best to stable companies with an established history or results Can be used to prove or disprove damages Need to consider what else may have caused a change Example 12

13 YARDSTICK METHOD Comparing to other departments in a company or others within the industry The guideline company or industry serve as a proxy Challenge: show results of guideline company or industry are similar to company in the dispute SALES PROJECTION METHOD Forecasting what sales would have been Use forecasts/projections prepared by company Understand & potentially question assumptions Not necessarily limited to company s internal profit projections Ignore them at your own peril 13

14 SALES PROJECTION METHOD One benefit More easily account for other factors affecting the damages Helps if forecasts for previous periods can be analyzed compared to historical results MARKET METHOD Used less frequently Expert considers the market share prior to the alleged action that caused damage Most common in patent infringement cases Need to define market 14

15 MARKET METHOD Analyze company s sales relative to market & competitors Similar issues related sales projection method Accounting for variables that affect a decline in sales & being able to reliably isolate those changes 15

16 CONTINUING PROFESSIONAL EDUCATION (CPE) CREDITS BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: The information in BKD webinars is presented by BKD professionals, but applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor before acting on any matters covered in these webinars. CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development Department at training@bkd.com 16

17 Bryan Callahan