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A guide to expert
accountants’ reports ■ Does the report state the assumptions
Despite efforts to ensure quality, expert accountants’ re- on which the expert’s computations are
ports can often be deficient. George Sim explains why.
An expert accountant’s report will often
contain assumptions about variables such
■ report contents – ensuring consistency as the future growth of turnover of a
■ reliance on financial statements business or its gross profit percentage. The
assumptions should not only be made clear
in the report but the expert’s justification
for adopting them should be stated. This
may, for example, be the past experience
of the business, e.g. a consistent gross
profit percentage in the previous five years,
industry background information, or the
approach adopted by the Courts in specific
types of case, e.g. dependency ratios used
in the computation of loss of dependency
in fatal accident cases.

The assumptions made may not

always be reasonable. For example, a report
in a personal injury case may assume that a
self-employed trader’s pension would have
been 50% of her pre-retirement earnings
despite the fact that there is no evidence
of her having made any significant pension
contributions before her accident and
despite the fact that it is highly unusual for
any pension scheme to provide a pension
equivalent to as much as 50% of pre-
retirement earnings.

■ Are the assumptions consistent?
xpert accountants’ reports vary is normally easy to establish the matters If an expert accountant assumes an increase
considerably. Some reports are short and on which the expert accountants were in a business’s turnover, s/he should also
consist largely of sets of calculations, instructed to report and to assess the extent have considered whether there will be any
whereas reports on large commercial cases may to which the report addresses each issue. costs associated with the increased income.
be lengthy and complex, with several appendices If a report addresses various issues, it may For example, in addition to direct labour
showing the detail of the expert’s calculations be that one is covered in detail but less costs, some of a business’s overheads such
and providing background information. attention is given to the others. In some as administrative staff costs and travel
areas in which there is limited information and subsistence expenditure may vary
The Civil Procedure Rules and the Protocol it may not be possible to express firm with turnover. It may also need to rent
for the Instruction of Experts to Give Evidence views. It is then a matter of judgment larger premises to deal with the projected
in Civil Claims, issued by the Civil Justice for the experts as to whether they state increase in sales.
Council in June 2005, set out basic requirements that they cannot form any meaningful
for all expert reports such as the requirement conclusions or whether they prepare a ■ Has the expert included copies of the
to provide details of experts’ qualifications report based very largely on assumptions principal documents relied upon?
and of reliance placed on others’ opinions. which will need to be stated in the report Copies of evidential documents relied
Nevertheless, solicitors and barristers will often and which may be subject to change if upon in the report should be attached as
need to assess the value of expert accountants’ more information becomes available. appendices or provided under a separate
reports by reference to more detailed criteria. cover.
This article provides a checklist covering issues ■ Does the report express views on matters
which may be important to an evaluation of an outside the expert’s competence? ■ Is the background information set out in
expert accountant’s report. Accountants, perhaps because of their the report accurate and adequate?
general business knowledge, may consider Background information about a case
General points that they are competent to express is a matter of fact. A report may include
■ Does the report cover the experts, opinions in expert reports on matters information of which the “other side” was
instructions? which are outside their areas of expertise not previously aware. There may also
Expert accountants’ reports generally such as property values. Clearly any such be errors such as a reference to outdated
summarise their instructions in the body of opinions may be of limited value: an particulars of claim. A report may use
the report or include a copy of the relevant expert accountant needs to be provided basic background information selectively
letter from the instructing solicitors as with information in any areas which fall to support its conclusions by omitting
an appendix to the report. Therefore, it outside his or her competence. information or by failing to mention

significant developments, such as the loss documents which forensic accountants to unincorporated businesses. In such
of an important customer or the departure rely upon in forming their opinions. It circumstances, experts can seek exchanges
of a key director. It may also mix fact is important to establish whether the of correspondence with HM Revenue
with comment which it is not possible financial statements on which reliance has and Customs to establish whether they
to substantiate such as: “this shows that been placed are “final” rather than “draft” have raised any issues in relation to,
Mr Smith was determined to develop his as significant adjustments can be made at for example, allowable expenditure e.g.
business into a leading concern in the area a late stage. whether private expenses of the owners
from the outset”. have been “put through the business” or
■ Does the report rely on signed financial the level of turnover and/or gross profit.
■ Does the report explain the expert’s statements?
conclusions? Similarly, reliance should be placed on ■ Has the expert examined relevant audit or
The report should develop in clear terms financial statements which have been accounting working papers?
the expert’s argument by reference to signed by one of the directors on behalf Given the limitations of financial
the information relied upon and the of the board rather than on those which statements as noted above, it is often
assumptions made by the expert. There appear to be final but which have not been useful for an expert accountant to review
may be several stages to the computations signed - adjustments may have been made the working papers of a business prepared
set out in a report, and these will need to before the final financial statements are by its external accountants or auditors,
be explained clearly, so that the reader can signed. if the business is subject to audit. These
see how the figures quoted in the report are can be particularly useful in identifying
derived. ■ Does the report take account of recent contentious issues and showing how such
developments? issues were dealt with.
■ Are the appendices consistent with the Even if a company files its financial
body of the report? statements within the statutory time limits, ■ Are there any factual or arithmetical
Simple errors may occur. One common its most recent financial statements may errors?
source of inconsistencies is the situation in not provide useful information about its Basic errors such as references to an
which calculations set out in the appendices current financial position. For example, incorrect trial date or year end, inaccurate
are altered at a late stage but the changes a private company whose year end is 30 page or paragraph references or arithmetical
are not reflected in the body of the report, June will have until 30 April 2006 to file errors indicate that a report has not been
or vice versa. its financial statements for the year ended checked carefully before being signed and
30 June 2005. It is possible, therefore, that can reduce its credibility and that of the
■ Do the conclusions of the report appear the most recent publicly available financial expert witness. Computational errors and
reasonable? statements for such a company at present mistakes relating to such matters as tax
An obvious example of a conclusion which will be those for the year ended 30 June rates or accounting standards are clearly
is not reasonable would be a projection 2004. In such circumstances, it will be damaging to the credibility of expert
of annual earnings for an individual in a necessary to ask for financial statements accountants.
personal injury or loss of profits case of, for the following year, if these have been
for example, £200,000 when earnings over prepared, and management accounts The questions above focus on some
the previous ten years were of the order of for as many periods as possible since 30 common weaknesses. However, they do not
£20,000 per annum. June 2004. It is often useful in any case cover all potential deficiencies, and it may
to take account of updated developments often be worthwhile for legal advisers to ask a
■ Does the report deal with matters which by referring to management accounts even forensic accountant to review a report prepared
may undermine the expert’s opinion? if the latest available financial statements on behalf of the “other side”.
The credibility of an expert accountant’s relate to a recent year end.
report will be enhanced if it acknowledges
and addresses facts and issues which ■ Have the financial statements been
do not “fit” the argument which is being accepted by HM Revenue and Customs?
advanced. The financial statements of many smaller George Sim is a member of the Academy of
companies are not audited. There is Experts, a founding member of the Expert
Accounting and financial issues therefore no independent source of Witness Institute and a partner at Sim
■ Does the report rely on final rather than assurance as to whether such a company’s Kapila, Chartered Accountants, London
draft financial statements? financial statements show a true and fair W1 a firm which specialises in forensic and
The financial statements of one or more view of its results and financial position. investigative accountancy.
businesses are often the most important This is also a consideration which applies E-mail:

Chartered Accountants
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