CalCPA’s Forensic Services Section provides an excellent forum to facilitate the exchange and dissemination of a variety of ideas, resources, current events, trends and relevant professional standards. The four underlying sections—Business Valuation, Economic Damages, Family Law and Fraud and Financial Investigations—allow members to interact on issues specific to their area of practice.

As part of the Economic Damages Section, we focus on issues related to the determination of damages in the context of litigation and other forms of financial disputes. The section meets at least three times each year to cover a variety of topics ranging from technical subject matter to presentation tips for expert testimony in court.

Introduction and Role of the Expert
In addressing the complexity of litigation and disputes dealing with nuanced economic, financial and accounting issues, the role of CPAs as expert witnesses has become increasingly important. This specialized knowledge and analytical capability assists the trier of fact (often a judge, jury or arbitrator(s)) through the delivery of expert opinion that may ultimately influence its decision.

CPAs serve as experts (e.g., forensic accountants) in matters such as business or shareholder disputes requiring the quantification of economic harm (i.e., damages); divorce proceedings involving intricate financial issues; investigation of alleged accounting improprieties; and valuation of businesses and related ownership interests. In disputes where damages are sought, CPAs are often designated as experts and tasked with quantifying various remedies, including lost profits, disgorgement of defendant’s profits and diminution in value. Their unique skill set makes them well-suited to articulate the financial ramifications of complex disputes.

Procedure for Expert Witnesses in California Superior Court
In California, experts can be retained by either party in a litigation (i.e., through counsel representing a party to the case); jointly or as a neutral (i.e. by both parties to a case and their respective counsel); or appointed by the court as an expert or referee.

The work completed by CPA experts will be specific to the matter at hand but there are many common elements of an engagement. These include review of documents produced in the matter; independent research; reading of depositions; review of legal documents; preparing financial or damages models; and providing expert opinions to the court. There is no requirement in California Superior Court to write a report, but in certain circumstances it may be produced.

Individuals retained as experts may be subject to discovery requests by a party to the case asking for various information in the expert’s file. This often includes the expert’s work product, files, notes and correspondence, such as e-mails. These requests are most often made in connection with a subpoena or notice of the taking of the expert’s deposition.

While the expert’s deposition is at the discretion of the opposing party, this is most often the first oral testimony by an expert in a case and may be the only testimony if the matter settles before trial (which is common). If the matter proceeds to trial, it is critical that the expert articulate their analysis and opinions in a manner that is easily understood by the trier of fact, as opposed to being overly technical
and beyond the understanding of the general public.

Rules surrounding experts vary by venue and an expert witness should obtain an understanding of the specific rules from retaining counsel.

Important Case Law Governing Expert Testimony in California Superior Court
There are two seminal rulings by the California Supreme Court that have shaped expert work and testimony, and which must remain in the forefront of the minds of experts. As any good expert will tell you, we are not providing legal advice in this article but rather pointing to relevant issues you should be aware of.

In People v. Sanchez (2016), the Court clarified important distinctions in the use and communication of hearsay by experts to the trier of fact. The court specifically stated, “What an expert cannot do is relate as true case-specific facts asserted in hearsay statements, unless they are independently proven by competent evidence or are covered by a hearsay exception. … When any expert relates to the jury case-specific out-of-court statements and treats the content of those statements as true and accurate to support the expert’s opinion, the statements are hearsay.” [People v. Sanchez (2016) 63 Cal.4th 665)]

As such, it is critical that experts confer with counsel to ensure that information serving as the foundation for an expert opinion is handled and admitted into evidence properly at trial.

In Sargon Enterprises, Inc. v. USC (2012), the expert’s opinion was excluded on the grounds that it was speculative, with the Court’s ruling underpinning that an expert’s opinion must be based on reliable evidence. The Court concluded that “the trial court has the duty to act as a ‘gatekeeper’ to exclude speculative expert testimony. Lost profits need not be proven with mathematical precision, but they must also not be unduly speculative.” [Sargon Enterprises, Inc. v. USC (2012) 55 Cal.4th 614)]

The Court’s decision reaffirmed its role to determine the admissibility of expert opinion (i.e., whether the opinion is rooted in fact, and should be heard by the jury). The ruling is in line with cases decided in federal court that form the basis of Federal Rule of Evidence 702 and what are commonly referred to as Daubert challenges.

Federal Rule of Evidence 702 was amended on Dec. 1, 2023, adding that the proponent must demonstrate the admissibility of the expert by a preponderance of evidence and that “the expert’s opinion must reflect a reliable application of the principles and methods to the facts of the case.”

These rulings underscore the importance that an expert have a thorough understanding of the evidence (e.g. documents, data, business records) forming the basis of an opinion to ensure its reliability and admissibility and to reduce the risk that the expert’s testimony is disallowed on grounds of hearsay or speculation.