Complex commercial and financial transactions are the norm in today's business world. When disputes arise, understanding these transactions often requires the expertise of financial professionals to assist a business's lawyers in preparing for lost profit analyses, fraud and forensic investigations, criminal tax defense, economic crime defense and receiverships, as well as mediation and arbitration.
Many cases are won or lost during discovery rather than trial. Qualified financial professionals, including CPAs, certified fraud examiners, certified valuation analysts and computer specialists, should work with your business's legal counsel in the preliminary fact-finding and discovery phases of litigation, settlement negotiations and trial support.
There are four areas where financial professionals can make a difference.
* Business valuations. Determining the value of a business is required in a variety of litigation contexts. There may be a dispute over the value of stock when a shareholder leaves the business. Or in divorce cases, a business or professional practice may be a couple's most valuable asset.
Valuing a business requires financial specialists who provide analysis of constantly changing financial information to arrive at a market value as of a fixed date.
* Forensic or investigative accounting. Forensic specialists apply accounting and auditing to the factual issues of employee misappropriation cases. They analyze these cases, interpret them for the business's legal counsel, recommend further avenues of discovery and draw appropriate conclusions.
These techniques may be used to establish causation of damages, uncover hidden assets or fraudulent conveyances, detect fraud or embezzlement or locate documentary evidence. Forensic specialists also advise lawyers about the types of business records to request.
* Determining financial damages. This may be the most important issue in a case, and the most uncertain -- whether you are the plaintiff or the defendant. Estimating what the plaintiff's financial condition would have been excepting the defendant's actions may require some creativity, and damage calculations must be supportable.
Lost profits, for example, or earnings and wages may be significant elements in cases involving personal injury, breach of contract, business interruption or securities fraud, to name a few. Financial specialists begin by interpreting historical financial data to determine potential damage claims.
* Identifying income tax implications. Meaningful decision-making during litigation requires an analysis of income tax implications. Because income tax consequences are often determined by how a complaint is drafted, a tax accountant should be retained early in the litigation process.
In some situations monetary damages may be tax-free to the plaintiff or deductible by the defendant. In divorces, the structure and timing of alimony, property settlements, child support and retirement plans are all affected by income tax considerations. Informed negotiating and structuring of settlements in the context of income tax rules can produce dramatically better results.
In light of these economic aspects of commercial litigation, business owners should secure the services of the right financial advisers to help their legal counsel with such matters as data collection and analysis, database management, report completion and expert testimony.
Experienced financial advisers should make significant contributions in helping business owners and their legal counsel understand the complex financial information involved in commercial financial disputes.
Frank A. Suponcic, CPA, CFE, is a principal at Skoda, Minotti & Co., a broad-based accounting, tax, strategic planning, litigation support, insurance and investment services firm. Reach him at (440) 449-6800 or email@example.com.