1st Quarter 2011: The Legal Concept of an Expert Witness
The federal and state courts rely on valuation experts to supply testimony in matters dealing with the complexities of business valuation theory and techniques. What does the court expect from this Expert Witness?
The elementary expectation is professional competence expressed in the form of experience and communication skills. The expert must have the academic and work experience qualifications to render an opinion on the specific valuation matters at hand in the particular case. He must then be able to communicate this opinion both verbally— deposition and testimony—and in writing a report.
The premise is that the expert’s testimony and report is both “relevant” and “reliable.” The relevancy of a testimony refers to whether or not the expert’s evidence “fit” the facts of the case. The reliability is expressed in the use of the scientific method to support conclusions and opinions. The scientific method contains these factors:
- Has the expert’s theory and technique been tested? Does empirical data exist to support or refute the work?
- Does peer review and publication subject the work to appropriate scrutiny and discussion?
- Does the method have a “known or potential error rate?” Are there standards controlling the technique’s operations?
- Has the theory and technique been generally accepted within the relevant professional or scientific community?
The expert witness must be properly disclosed to the court. Federal Rules of Civil Procedure—Rule 26(a)(2) mandates specific disclosures to accompany the expert’s signed, written report. The Rule states the report shall contain:
- A complete statement of all opinions to be expressed and the basis and reasons therefore;
- The data or other information considered by the witness in forming the opinions;
- Any exhibits to be used as a summary of or support for the opinions;
- The qualifications of the witness, including a list of all publications authored by the witness within the preceding ten years;
- The compensation to be paid for the study and testimony;
- A listing of any other cases in which the witness has testified as an expert at trial or by deposition within the preceding four years.
Several professional associations exist to provide guidance and credibility to business valuators. These associations provide their membership with professional certifications, prescribed practices and standards, and an on-going continuing education curriculum. Expert witnesses are often members of one or more of these associations.
The National Association of Certified Valuation Analysts (NACVA) is one of the primary associations with certain members capable of providing Expert Witness services. A NACVA certified member, representing him or herself as an Expert Witness, will possess the competence and qualifications to provide Expert Witness services. Written reports will comply with the organization’s professional reporting standards and guidelines. Visit the NACVA website (www.NACVA.com) to review Professional Standards, certification programs and other key information about the association.
Insights on Valuation
1st Quarter 2011, Vol. 1
Used with permission from NACVA
Posted on: March 14, 2011
