Court cases within the past decade have changed the landscape of accounting, especially Sarbanes-Oxley, which has been humorously labeled “The Accountant Employment Act”, because it established the requirements of audited balance sheets from internal and external sources, among many other requirements for CPAs and corporations.

Within the past few years, there has been a few legal changes which have affected forensic accounting directly, this post will review the changes and discuss the laws. The information discussed is provided by the KPMG’s Forensic Accountant.

1) Experts’ loss of immunity

In the 2011 Jones v Kaney Supreme Court case, it was ruled that expert witnesses were no longer immune to suit due to the outcome of the case. The particulars of the case revolved around a psychologist who had negligently signed documents which significantly decrease the validity of the defendant’s claims, which required the defendant to settle for a lesser amount than had the expert witness performed the job adequately. This court case is particularly important for forensic accountants who participate in expert testimonies because it increases the amount of liability they face when participating in court proceedings. The future of accountants may need to involve liability insurance to cover possible law suits.

2) Admissibility of expert evidence in criminal proceedings

In March 2011, the Law Commission, developed and introduced a “reliability-based admissibility test” in order to assess the validity of information provided by expert witnesses. Previously, expert witness testimony was admitted, typically without scrutiny from other experts within the field, which lead to problematic consequences. First, the testimony is taken at face value by juries because often expert testimony is technical and complicated, which leaves them dependent on faith in the credibility of the witness. Second, without the investigation into the methods and data of the expert witness, there could be errors or gross miscalculations on the part of the expert. The new test and requirements regulate the expert evidenced and establish validity and credibility of findings prior to being submitted into court proceedings. The changes are established within The Draft Criminal Evidence Bill, which was passed with hopes in addressing the problems previously mentioned, but also to restore public faith in expert witnesses. This change affects public accountants in the same as it would any expert witness, but it will be especially important for forensic accountant expert witnesses to follow procedural steps for methodology and reporting.

The article covering the changes is written and compiled by KPMG, one of the largest CPA firms, in the U.S. and internationally. The information provided goes on to cover changes to legal aides and ‘no win, no pay’ fee agreements, but the data did not establish how the legal changes directly affect the forensic accountant. Unless the forensic accountant is hired independently on a basis providing legal aid (a position better suited for a lawyer), or is providing expert information on a ‘no win, no pay’ agreement (again, typically reserved for lawyers), it is not immediately obvious as to the breadth that these changes affect forensic accounting.

Emmanuel, Eileen, and Arnab Datta. “Recent Legal Developments Affecting Forensic Accountants.” Forensic Accountant 37 (2012): 8-10.