Economic & Accounting Experts - The Differences
Types of Forensic Expertise
There is much crossover among disciplines in the performance of forensic expert work. Practitioners may have educational backgrounds in economics, finance or accounting. However, it is the knowledge, training and experience of the forensic expert that is key in calculating economic damages, and not a specific degree.
Forensic economics is the scientific discipline that applies economic theories and methods to the issue of pecuniary damages as specified by case law and legislative codes. Topics within forensic economics include (1) the analysis of claims involving persons, workers, firms, or markets for evidence concerning damage liability; (2) the calculation of economic damages in personal and commercial litigation; and, (3) the development and use of generally accepted forensic economic methodologies and principles. [Definition adopted by National Association of Forensic Economics Board of Directors, 8/1/2002]. Graduate work in economics typically includes classes in statistics, mathematics, econometrics, theory of the firm, labor theory and advanced courses in microeconomics and macroeconomics.
Forensic Accounting is a very general term. It can be and is often used to describe a wide range of functions or tasks utilized by Certified Public Accounts or other finance and accounting professionals, such as MBAs.
With regard to the legal arena, forensic accounting often refers to the process whereby a forensic accountant utilizes investigative accounting skills to identify data and information relevant to the calculation of various forms of economic damages including lost profits, business destruction, partnership/ownership disputes, etc.
Likewise, training in finance can also provide a forensic expert with the tools necessary to provide a thorough analysis of a damages claim, especially in matters involving commercial damages, stocks, intellectual property, insurance claims, business valuation, banking and real estate matters. Business and finance training, coupled with broad real-world experience, can provide key insights into complex litigation.
The skilled forensic accountant or economist will be well prepared to explain his procedures and opinions in a clear, cogent manner, thereby assisting a trier-of-fact in making an informed decision.
The Difference between a Forensic Accountant, an MBA and a Forensic Economist
There is certainly overlap between the work of forensic accountants, finance experts and forensic economists. Forensic accountants and finance experts often focus on business related litigation including lost profits (past and future), business destruction, business valuation and partnership/ownership disputes. Forensic economists may focus more on forecasting and determining the present value of future income streams, benefits, household services, and medical care costs. Economists often calculate lost profits and royalties in intellectual property matters. Accountants and finance experts can successfully opine about lost wages and economists can be powerful experts on business. There is often enough crossover in the backgrounds, education, training and experience of forensic economists and forensic accountants to do the work traditionally done by one or the other. However, in more complicated matters, a multidisciplinary approach is often the best course.
For example, in a commercial damages business interruption matter involving lost profits, lost salary and lost stock options a finance expert may focus on the financial aspects, such as the value of lost stock options; the accountant may focus on determining the lost cash flow and profits; and the economist on forecasting market trends, market share and lost salary. A single expert may not be a qualified expert for such a broad scope of damages. For each area of expertise there is an accepted literature, methodology, body of data sources and a necessary level of experience to master the specific tools of forensic analyses. Forensic experts have differing educational backgrounds, areas of experience, and training. Choosing the appropriate expert or team of experts can be critical to your case.