Critiquing another expert’s report

Key Areas of Critique

Whether the expert report is prepared for a dispute with economic loss or a valuation, there are three key common areas for critique which include: 

• Information
• Assumptions and Limitations, and
• Methodology and Approach.

Information

Information is fundamental to what the accountant can and cannot do in their work, how they go about their work, how long it takes and costs and the end conclusions. It can also put major and fundamental limitations on conclusions. 

There are six questions you need to ask yourself about any piece of key information upon which the valuation or loss calculation relies on.

1. What has been provided?
2. What has been used?
3. How has it been used?
4. Where did it come from?
5. How has it been tested?
6. What type of information is it?

The answers to these questions allow us to assess the robustness of the conclusions in the expert report. For example, do the conclusions rely on statements or assertion from the other expert’s client? If there’s no third-party evidence of this, then we should consider whether the conclusions are built on solid foundations and the effect of removing these statements on the conclusions.

We’ve seen examples of reports that relied partially on invoices in a spreadsheet, but also just hard coded numbers in those spreadsheets with no invoice numbers that were represented as ‘sales’. In this case, we were able to show that these supposed ‘sales’ had no evidence in the business records.

Assumptions and Limitations

Often the extent of the lack of information means that the valuation or loss calculations are underpinned by a lengthy list of limitations and assumptions. This may be the case even if these aren’t stated in a report, as they are implied.

Both instructed assumptions and assumptions made by the expert will need to be tested from credibility. If an expert is heavily reliant on assumptions that are found to be unproven or inadmissible by the Court, the expert’s report is likely to be of limited value.

Methodology and Approach

In the case of a valuation report, there are various methodologies a forensic accountant can adopt, however, not all of them will be appropriate. When reviewing an expert report, the goal is to assess the reasonableness of the selection and application of the methodology. The appropriate valuation method will depend on the nature of the business, information available and other factors.

Similarly, in a loss of profits, it is important for the expert to adopt an approach that is reasonable in the circumstances. This is particularly the case when considering the ‘But-For’ of a calculation. We often see projections that are clearly unrealistic and often include irrelevant information, such as supposed losses from an adjacent business.

Key takeaways

1. Information is critical to an expert accountant’s work. It shapes the assumptions, methodology, and ultimately the conclusion and opinion in an expert report.
2. Are the instructions adopted by the expert supported? If the assumptions are found to be unproven or inadmissible, the expert report may be of limited value.
3. Is the method and approach realistic? Different methodologies can result in drastically different conclusions and opinions.

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