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In several judgments over the past 12 months, the Court has dismissed Expert Accountant reports based on underlying assumptions of the Expert were found to be unproven or inadmissible by the Court, or inadequately explained by the Expert.
Let's explore the two types of assumptions typically encountered by an Expert:
Assumptions of this kind are commonplace in commercial matters and are often necessary in order to provide the Expert with a basis to form their opinion. In these circumstances, the onus is on the instructing party to provide the basis, supporting evidence or otherwise of the assumption.
However, what is the responsibility of the Expert in regard to instructed assumptions? Blind faith? Critical analysis?
APES 215 Forensic Accounting Services, the professional standard all forensic accounting engagements must comply with, provides the following guidance:
The Report of an Expert Witness5.6 Subject to any legal requirements or restrictions, a Member providing an Expert Witness Service shall clearly communicate in any Report:
(j) the significant assumptions upon which the opinions or Other Evidence are based and the following matters in respect of each significant assumption:
(i) whether the Member was instructed to make the assumption or whether the Member chose to make the assumption;
(ii) if the Member chose to make the assumption, then the reason why the Member made that choice; and
(k) if the Member considers that an opinion or Other Evidence may be misleading because a significant assumption is likely to mislead, then a statement to that effect and an explanation of why the assumption is likely to mislead.
Therefore, at a minimum, an accounting expert must state the assumptions they were instructed to make. The Expert also has an obligation to communicate any assumption they consider to be misleading and reasons as to why.
It’s unlikely a lawyer would submit an Expert report as evidence supporting their clients' position that has a statement saying an instructed assumption may be misleading. Most issues regarding 'misleading' (or potentially misleading) assumptions are usually thrashed out by the Expert and instructing party prior to the instructed assumption(s) being issued to the Expert.
Assumptions made by the Expert usually stem from an assessment made during the engagement.
As stated above, APES 215 requires the Expert to detail their significant assumptions and to clearly communicate the reasons why the Expert has made such an assumption.
Not surprisingly, the Court is telling us that if an Expert is substantially reliant on assumptions – be that instructed or made by their own volition – that are found to be unproven or inadmissible by the Court, the Experts report (or parts thereof) is likely to be dismissed.
The Court’s willingness to dismiss an Expert report serves as a stark reminder to ensure we are careful in the assumptions made when preparing our opinion and conclusions.
