The Role of the Accountant in ADR
Accountants are
often involved in litigation as experts -- examining books and
records during discovery and testifying about damages, business
valuation, and tax consequences. With an increasing number of
disputes being resolved outside the courtroom, lawyers should
consider the role accountants can play in alternative dispute
resolution (ADR). Bringing an accountant into the process early
can often save time and professional fees and may reduce the
client's financial burden. A client in the preliminary stages of
a business dissolution or divorce, for example, may want to
discuss property valuation issues and the tax consequences of
various settlement options with an accountant to gain a
realistic understanding of the situation. If the parties can't
reach a settlement, a contract or court rules may require the
matter to be submitted to ADR. Even if ADR isn't required, the
parties may consider arbitration or mediation as a potentially
faster and cheaper alternative to litigation in court.
Accountant as Arbitrator
An increasing number of lawyers are including accountants on the
panel of arbitrators in commercial cases and cases involving
personal damages. In fact, there's a movement within the
American Arbitration Association to promote the use of
accountants in complex financial cases. These cases often
involve complicated damage calculations, as well as interest and
tax issues. |
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Arbitrators who lack the specialized knowledge to
address these issues may be tempted to "split the
baby" -- a
common complaint by critics of the arbitration process. The
accountant as arbitrator offers a number of other advantages.
The accountant's special expertise allows the lawyers to spend
less time explaining the issues. And the accountant can educate
the other members of the panel and help the panel reach a
decision that makes sense for all the parties. |
Case Example 1
In an arbitration proceeding involving the dissolution of a
corporation, questions arose regarding how transactions were
reported on the tax returns of the corporation and its owners,
the calculation of profits, and the use of net operating loss
carry-forwards. An accountant serving on the panel was able to
move the dispute toward a quicker resolution because of her
understanding of the matter and her ability to simplify the
issues for other panel members. Arbitration is less structured
than litigation in court and doesn't involve concerns about
prejudicing a jury. As a result, arbitrators don't need
extensive knowledge of the rules of evidence. Still, the
proceedings can benefit from the participation of accountants
who specialize in litigation services. With their courtroom
experience and knowledge of procedures, they can determine what
is relevant and rule on objections.
Case Example 2
In an arbitration proceeding involving commercial damages, an
accounting expert witness presented extremely detailed analysis
using charts and graphs. An accountant on the panel was able to
summarize the information for other panel members and ask
specific, pointed questions that brought the issues into focus.
Lawyers can anticipate these issues in drafting certain
contracts -- such as shareholder agreements, partnership or LLC
agreements, employment contracts that call for death or
severance benefits, and sales contracts involving financing.
They should consider including an arbitration clause stating
that a member of the panel will be an accountant. In choosing an
accountant for the panel, the lawyer should consider the
accountant's experience with dispute resolution as well as his
or her expertise in the particular financial issues involved.
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