We hear below from Sandy Cowan, accredited forensic accountant and partner at Mazars, who goes in depth on the many interesting facets of the role, the skills required to perform it effectively and its importance for the just outcomes of many disputes.
As a forensic accountant at Mazars, in what disputes are you typically called upon to provide your perspective?
As a forensic accountant I am typically called upon to advise on a range of different disputes across industries. I have experience in expert and advisory work in both litigation and international arbitration, having worked in the context of instructions in the High Court (the Commercial Division) and arbitral proceedings in many jurisdictions (under ICC, ICSID, DWT, Ad hoc and LCIA) and Expert Determinations (in particular those arising from post M&A disputes).
My dispute resolution experience includes breach of contract claims, bilateral investment treaty disputes, completion account disputes, post-acquisition warranty claims, loss of profits claims and contentious valuations. That is the great thing about being a forensic accountant – our work is always varied, which keeps it interesting.
My ideal dispute would be an M&A dispute in international arbitration.
How is the input of a forensic accountant crucial to the just outcome of these proceedings?
The basic rule of damages is that the claimant is entitled to a sum of money which will put the claimant in the same position they would have been but for the wrongful act. Therefore, damages are a critical component of most cases.
Tribunals and Courts that misunderstand the relevant damages do not render justice to the parties and may not put the aggrieved party back in the position it would have been but for the act (paraphrasing John Tenor, GAR: ‘The Guide to Damages in International Arbitration’). In order to receive the fairest outcome, it is important to establish what the claimant’s actual losses are, if any.
If we consider the role of a forensic accountant as an expert witness, what must be considered within the remit of arbitration and litigation is that the overarching role of an expert is to assist the Tribunal/Court on matters within in the expert’s expertise whether an expert has been appointed by a party, both parties or the Tribunal.
In order to receive the fairest outcome, it is important to establish what the claimant’s actual losses are, if any.
From a practical sense the expert should not argue the most beneficial possible case from the perspective of his or her instructing party but consider all available evidence objectively and arrive at an independent view of the issues at hand. If experts were not independent, how would Tribunals and Courts come to a decision on matters outside their own expertise like technical accounting issues? That said two experts may have differing views due to: instructions on factual assumptions, reliance on other experts, time available and information asymmetry.
Forensic accountants may also take on advisory roles (as opposed to expert roles) either alongside the arbitration/litigation process or in the context of expert determinations. In these cases, the forensic accountant’s duty is to their client and as such they may be in a position to assist their clients in presenting their damages case in the best possible light.
What skills do you bring to bear as part of this work?
Forensic accountants have to be able to analyse complex data, compute the correct answer then present the findings in a clear, robust and logical manner to the readers, typically lawyers (as far as disputes are concerned).
Forensic accountants will require an understanding of the necessary legal, regulatory and accounting frameworks which relate to the matter at hand as well as all the necessary information required to perform their work. They should be able to make justified assumptions and judgements and be articulate when presenting their findings.
Having qualified as an auditor initially as well as my forensic work over the last 15 years, I have a broad range of experience which can be applied to most situations. I love getting into the detail, which is essential when working on forensic cases as there is no concept of materiality, and an understanding of that detail is essential when it comes to giving evidence in a hearing.
You have worked on post-acquisition warranty claims. How do these types of disputes typically arise and how do you assist your clients in such cases?
Post-acquisition claims typically (although not always) arise from completion accounts disputes, earn-out disputes or warranty claims. Completion accounts disputes arise post-acquisition when the parties are doing a true-up of the closing balance sheet at completion, while earn-out disputes are similar to completion accounts disputes but evolve around the calculation of additional consideration to be earned at a later point in time. Warranty disputes are, as the name suggests, breaches of warranties, with the most often-breached warranties relating to accounting information.
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With regard to completion accounts disputes and earnout disputes, these types of disputes typically lend themselves to be solved via expert determination, which can be a much quicker process. The role of forensic accountant generally can either be as advisor to the buyer or seller or as an expert determiner, a quasi-judicial role which is part of the alternative dispute resolution approach of expert determinations. Usually, expert determinations in completion account and earnout dispute settings requires the interpretation of the share purchase agreement as an expert accountant.
With regard to warranty claims, these types of disputes usually lend themselves to be litigation or arbitration. Forensic accounts could help the buyer or seller pre-litigation in valuing any potential claim. Forensic accountants may also be used as experts in any subsequent litigation. Additionally, insurers who may have provided W&I insurance may also require the services of a forensic accountant with regard to validifying and potential payout, but also in the case of subrogation. Typically, a forensic accountant’s involvement in a warranty dispute would relate to valuing the acquired entity in its current state versus its warranted state to produce a loss of value which will be the claimed amount.
Sandy Cowan, Partner
30 Old Bailey, London EC4M 7AU
Tel: +44 (0)207 063 4569
Mobile: +44 07795 401183
Sandy Cowan is a partner in the Crisis and Disputes team at Mazars LLP. He is a Chartered Accountant and a Fellow of the Institute of Chartered Accountants in England and Wales. Sandy is also an experienced forensic accountant and has worked in the context of a wide range of dispute resolution, investigation and other forensic accounting cases. Who's Who Legal describes him as being lauded by clients and "a personable expert who is analytical, knowledgeable and full of creative ideas".
Mazars is a leading international audit, tax and advisory firm. Operating as a united partnership in over 90 countries, the firm works as one integrated team, leveraging expertise, scale and cultural understanding to deliver exceptional and tailored services in audit and accounting, as well as tax, financial advisory and consulting. Mazars’ Litigation and Arbitration team was recently ranked in GAR 100 Expert Witness Firms' Power Index for the first time. This annual list, which identifies the top expert witness firms in arbitration, has described Mazars as “a prominent debutant this year”.
