Valuation Expert Witnesses: Definition, Roles, And Responsibilities

Valuation expert witnesses. Valuation refers to the act of determining the financial value of any type of property, making valuation expert witnesses relevant to a high number of potential cases. Valuation expert consulting may provide information regarding the appraisal of real estate, automobiles, businesses, landscape, e-commerce, jewelry, machinery and various forms of mechanical equipment, industrial property, broadcast equipment and other items of the entertainment industry, agricultural property, livestock, numismatic property (i.e., various types of currency, such as coins and precious metals), antiques, restaurants and other areas of the foodservice and hospitality industries, intellectual property, and other types of ownership, each of which may be involved with a lawsuit.

Valuation Expert Witnesses

Valuation Expert Witnesses: Definition, Roles, And Responsibilities

Because the discipline is concerned with determining value, valuation expert witnesses are often from a background of different financial areas. Business valuation, for instance, involves assessing the worth of intangible assets, stock options, securities, derivatives, and mergers and acquisitions. Valuation expert witnesses may also have experience dealing with shareholder disputes, corporate bankruptcy, and other problems with business-oriented accounting.

Valuation expert witnesses are sometimes called upon for a case to offer an expert opinion concerning the accuracy of financial reporting, as a discrepancy may lead to litigation if illegal activity is found. Economic damages lost profits, and tax disputes may require the expertise of a valuation expert.

Reasons For A Valuation Of An Asset

The reasons for a valuation of an asset are countless. Examples of valuation matters that would require expertise and expert witness work include intellectual property matters, breach of contract, eminent domain, business valuation, personal injury, product liability, and fraud. Litigation support by a valuation expert witness includes an expert report, financial statements review, damage analysis, and expert testimony in court.

In a high-profile case involving a significant financial stake, a law firm may request a testifying expert with prior testifying experience. A valuation expert witness needs to not only have expertise but must also possess the ability to explain technology to laypeople. In addition, clients may seek a valuation industry expert for pre-litigation consulting work.

When Do You Need An Expert Witness To Provide Business Valuation Services?

It is critical to use an independent expert who is familiar with valuation methodologies acceptable to triers of fact when involved in litigation that requires a business valuation.

This expert’s methodologies for valuing the business will be similar to those used for valuation prior to a merger or acquisition. However, the valuation performed for litigation must meet scientific methodology standards as well as the appropriate experience of the expert performing the valuation.

The following factors may be considered in determining whether the methodology is valid under the Daubert standard:

  • Whether or not the theory or technique under consideration can and has been tested;
  • Whether it has undergone peer review and publication;
  • Its actual or potential error rate
  • The existence and upkeep of standards governing its operation; and
  • Whether or not it has received widespread acceptance within a relevant scientific community.

How Expert Witness Valuation Can Help With Dispute Resolution

An expert witness in valuation is critical to the outcome of complex commercial litigation. The expert’s findings will be used by the trier of fact to determine damages awards.

If the valuation does not meet the Daubert criteria, the expert’s opinions may be excluded, leaving the judge or jury with only the opposing side’s business valuation conclusions.

A business valuation expert can also assist in the critique and evaluation of opposing business valuation experts’ conclusions. If the opposing expert’s conclusions are shown to be unscientific, the valuation expert may be successful in excluding them.

Final Thoughts

An expert witness valuation is a valuation of a business performed under legal requirements using generally accepted scientific methods by someone with the necessary knowledge to perform such a calculation.

Such valuations are required in the context of financial reporting (for example, to obtain a loan or to be acquired) and tax matters (for example, estate planning and ownership interest transfers), as well as in litigation if there is a dispute over the business valuation.

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