LITIGATION
85 percent of commercial disputes that are voluntarily submitted to mediation successfully result in a settlement. — AMERICAN ARBITRATION ASSOCIATION
THE ROLE OF THE CPA As expert witnesses or consultants, CPAs are engaged to assist attorneys and the ADR panel in understanding complex accounting and auditing issues, financial matters, business practices and damages assessments, among other things. CPAs may support their client through the discovery process, which can include assisting with documentation requests from the opposing party and depositions of key individuals. The CPA will use the information gleaned during discovery to form an opinion regarding the key issues in the case, which can include a business valuation, calculation of economic damages or determination of compliance with Generally Accepted Accounting Principles (GAAP) or Generally Accepted Auditing Standards (GAAS). If the CPA is engaged as an expert witness in arbitration, the expert may also provide that opinion to the arbitrators through the issuance of an expert report and testimony. When CPAs are engaged during mediation as an expert witness or consultant, they can provide opinions or analysis related to the merits of a party’s position. In providing these client services, the CPA must be aware of the applicable professional standards governing litigation consulting, including the American Institute of CPAs (AICPA) Code of Professional Conduct and the
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DISCLOSURES
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Statements on Standards for Consulting Services. Varying protocols exist for ADR, depending on the type and form of governance agreed to by the disputing parties, so the CPA must be familiar with the established guidelines for the selected ADR forum. As mentioned previously, arbitrators and mediators are generally selected based on their expertise and, consequently, CPAs may also be engaged in ADR as the designated neutral third party. As an arbitrator or mediator, a CPA may be asked to assist with disputes involving complex accounting issues. CPAs can become certified arbitrators or mediators through a variety of organizations. The ABA Section of Dispute Resolution offers mediation and arbitration certification in Washington, D.C. Virginia’s Judicial System website (www.courts.state.va.us) also provides a list of certified mediation training throughout the state.
CASE STUDY: HOME RUN While the concept of ADR is straightforward, the specific rules and procedures vary from case to case and one example of this is “baseball” arbitration. Baseball arbitration has added drama to some ordinarily less glamorous disputes and CPAs are along for the ride. Baseball arbitration
received its name from salary disputes between Major League Baseball players and franchises, but the principles of baseball arbitration go beyond the field. Under the rules of baseball arbitration, each party submits a figure, such as a proposed salary or damages, to the arbitrator prior to the hearing. After the arbitrators have heard the case, they must select one of the two numbers submitted without any adjustment or modification. In other words, the arbitrators are not allowed to “split the baby,” but must choose a clear winner and loser by selecting only one of the party’s proposed numbers. Parties are incentivized to provide a reasonable number to the arbitrators, because it improves the chance of selection of their number; however, parties that submit too conservative of a number may risk leaving money on the table. As part of baseball arbitration, CPAs are often engaged to help attorneys and clients submit a reasonable, competitive figure to the arbitrators. One of my colleagues at Veris Consulting, Inc., was engaged by a major Swiss financial services company and its counsel in connection with a dispute concerning the post-valuation sale of the company’s international insurance and reinsurance operations in what is believed to be the world’s largest dollar value baseball arbitration. After the sale of its international insurance and reinsurance business, our client was obligated to pay the buyer an amount related to the current valuation of its insurance obligations; however, the parties disagreed about the amount of the exposure and entered baseball arbitration. As a CPA, my colleague