Anatomy of a Financial Expert Witness Report

Financial expert witnesses are not only technicians within their chosen field, they are communicators. Even the most technically proficient experts will fall flat on their face if not prepared to concisely and accurately communicate their findings. This must be done both written and verbally, to clients, opposing counsel, and the trier of fact. Being a proficient communicator can be what separates the technicians from the expert witnesses.

I had just started my own forensic accounting and economic damages practice when I was at my first convention exhibiting with one of my colleagues and mentors. I had hopes of generating more work for my fledgling practice. While meeting trial attorneys during the course of the convention, an attorney walked up to the booth. I found out his office is less than five minutes from my office. He suggested a meeting and I happily obliged. This experienced and kind trial attorney set up a meeting at his office. We had an engaging conversation that evolved into the topic of financial expert reports. Specifically we discussed the format they ought to follow. He asked me how I organize my reports and this is what I explained to him:

Introduction

Every financial expert witness report should contain an introduction to explain

• who you are
• the parties involved
• the scope of your analysis/opinion

The detail contained in the introduction can be as specific or general as desired. Some experts will prepare an introduction that sometimes reads more like an executive summary with the economic loss calculations contained in the introduction.

Background

Every financial calculation is based on a certain set of facts and this is where they will be laid out. Many financial experts have a practice that focuses on a certain type of financial damage claim; therefore, the types of facts they rely upon for each engagement may be somewhat uniform. The background section of an expert report should include details relating to the event that caused the alleged financial damages. This includes details relating to the party(ies) involved such as income/earnings, work experience, employment/work history, mitigating information, etc.

Background information should be derived from, if available, original documentation. Make certain that the facts the financial expert is relying on in the financial calculation are correct. Make sure they are not misquoted or misrepresented by another expert in their report. The information relied upon by the financial expert should be corroborated via multiple sources of documentation, if possible, to create a greater level of certainty.

Documents Reviewed

This is an element of the background. However, it is very important to describe what documentation was reviewed and relied upon in forming the basis for financial calculations and conclusions in the financial report. The list of documentation and information can be long and exhaustive. As such, it is prudent that this detail be prepared separately from the background. This section should be prepared in bullet format in order to clearly illustrate the documentation relied upon.

What if the list is too long? Documents reviewed can be a separate exhibit, or attachment, to the report, if necessary. Some experts may believe it is acceptable to reference source material throughout their report. Whether courts find this method acceptable is questionable. However, no trier of fact will likely take issue with an expert who organizes and discloses all relevant documentation provided for their analysis during discovery, as illustrated above, in a stand-alone section of the report or an exhibit/attachment.

Claimed Loss

If the financial expert witness is preparing a rebuttal report of a Plaintiff financial expert’s calculation, a detailed description of the Plaintiff expert’s analysis and calculation(s) ought to be summarized. In this section each component of the claimed economic loss should be factually described as they relate to the overall economic loss claim. The description of each loss component may include examples of the following: What earnings base was used? How did the Plaintiff financial expert calculate average gross profits? What statistics or research materials were specifically relied upon? This section ought to have, probably most appropriately at the end of the section, a reference to the total claimed economic loss calculation prepared by the Plaintiff financial expert

Analyses of Claim

Whether a report is being prepared for the Plaintiff or the Defense, this section of the report is a detailed description of the facts, statistics, or other research relied upon by the financial expert in their calculation. Imagine the economic loss calculation as an outline or a list of steps. The report should be written congruently with how the calculation is prepared. This will maintain clarity and better communicate the findings to the client, opposing counsel and the trier of fact.

Ideally, someone reading this section of your report should be able to follow the logic of the economic loss calculation. This ought to correspond with a table within the financial expert’s report or an exhibit attached to the report. If the report is the verbal description of an economic loss, the table(s) and/or exhibit(s) are the illustrative description of the economic loss calculation. If facts or statistics are relied upon in the calculation, list them as well as the source documentation. Descriptions of calculations should be logical and organized. Use of tables, bullet points, references to attachments/exhibits, footnotes, etc. should all be utilized in order to effectively communicate the expert calculation that was prepared.

If the report is being written as a rebuttal report, references to differences in the Defense expert’s calculation and the Plaintiff expert’s calculations can be made. If there is a substantial difference in methodology, make sure there is a clear and concise explanation as to why looking at six years of financial history is more appropriate, in your expert’s opinion, than one year.

Be certain there is a clear explanation why the average inflation rate utilized in your expert’s report is more credible than the average inflation rate utilized by the opposing expert. Was there relevant case law in the jurisdiction the Complaint was filed, but not reflected in the opposing expert’s calculation. Make certain there is a reference to the case law and how it was applied in your expert’s calculation. Preparing these critiques and communicating them in the rebuttal expert report will help the expert craft their possible testimony at deposition or trial at a later date.

Conclusion

The report ought to be filled with analysis and technically-related material. The conclusion should clearly and efficiently summarize the multiple calculations, if relevant, to the economic loss. Only a few sentences are necessary and loss calculations should be referenced both incrementally as well as cumulatively. Think “Grand Total” when assisting the reader.

Although there is no standard report format required by the courts relating to financial experts, it is incumbent upon the expert to effectively and efficiently explain their calculations and conclusions for their clients, opposing counsel and the trier-of-fact. In order for the technician to become an effective expert witness, communicating calculations and conclusions is integral.