1 of 79

CHAPTER 2:�THE LEGAL ENVIRONMENT�OF FORENSIC ACCOUNTING

2 of 79

Learning Objectives

Explain why it is necessary for a forensic accountant to have a working knowledge of the legal environment
Describe the classification (categories) of law and the basic structure (three stages) of a civil trial
Explain the concepts of burden of proof and standard of proof
Describe the court’s gatekeeping role in determining the admissibility of evidence

3 of 79

Learning Objectives

Identify the rules of evidence that address expert testimony and the specific criteria for the admissibility of expert testimony
Describe the purpose and process of a Daubert challenge, and identify the factors that should be considered when evaluating expert testimony
Identify the requisite elements for establishing attorney–client privilege

4 of 79

Explain Why It Is Necessary for a Forensic Accountant to Have a Working Knowledge of the Legal Environment

Learning Objective 1

5 of 79

Understanding—Legal Environment

Law

Governance by cumulative body of legal principles is superior to the rule of any human leader (for example, a dictator, king, or president) and that all people stand equal in the eyes of the law—that is, no person is above the law
Law is the system of rules of conduct established by the government of a society to maintain stability and justice
Rule of law doctrine (principle)

Definition and Functions of Law

In the United States, we advocate a rule of law doctrine, which proposes that governance via a cumulative body of legal principles is superior to the rule of any human leader (for example, a dictator, king, or president) and that all people stand equal in the eyes of the law—that is, no person is above the law. Black’s Law Dictionary defines law as the “legal order, system, or regime that orders human activities and relations through systematic application of the force of politically organized society, backed by force.” According to this definition, the law serves to influence, protect, regulate, and maintain our society. Moreover, it suggests that the law is fluid, forever evolving in response to social, economic, and political forces.

Law has three basic functions: (1) dispute resolution (criminal and civil actions), (2) protection of property (such as use and contract rights), and (3) preservation of the state. The law is enforced with the use of sanctions. In criminal cases, sanctions include imprisonment, home confinement, probation, day reporting, fines, or even capital punishment. In civil cases, sanctions generally involve compensation for loss or wrongs suffered (for example, economic damages).

6 of 79

Understanding—Legal Environment

Black’s Law Dictionary defines law as the “legal order, system, or regime that orders human activities and relations through systematic application of the force of politically organized society, backed(supported) by force
According to this definition, the law serves to influence, protect, regulate, and maintain our society

7 of 79

Understanding—Legal Environment

Basic Functions of Low
Dispute resolution(which could be criminal or civil in nature)
Protection of property (such as use and contract rights)
Preservation of the state

In criminal cases, sanctions include imprisonment, day reporting, fines, or even capital punishment
In civil cases, sanctions generally involve compensation for loss or wrongs suffered (for example, economic damages)

8 of 79

Understanding—Legal Environment

Law and justice

Citizens enjoy the constitutional promise of justice
Justice is a profound concept generally defined by its context

Justice implies fair and equal treatment (rights and protections) within the judicial system
The judicial process is administered and managed by the court
Two components of the judicial process that are important to forensic accountants include procedures and evidence

Law and Justice

U.S. citizens enjoy the constitutional promise of justice, which appears in the Preamble to the United States Constitution.

Justice is a profound concept generally defined by its context. For example, Black’s Law Dictionary defines multiple forms of justice:

• Civil justice. Justice concerned with the private affairs of citizens and their respective rights, including certain freedoms of speech and action and equal treatment,

protection, and opportunities regardless of race, sex, or religion.

• Criminal justice. A system directly involved in the apprehension, prosecution, defense, sentencing, incarceration, and supervision of those suspected of or charged

with criminal offenses.

• Personal justice. Justice between parties to a dispute, regardless of any larger principles that might be involved.

• Social justice. Justice that conforms to a moral principle (for example, all people are equal).

• Substantial justice. Justice fairly administered according to the rules of substantive law (such as a fair trial). In a legal setting, justice is

viewed as both a process and an outcome.

As a process, justice implies fair and equal treatment (rights and protections) within the judicial system. The judicial process is administered and managed by the court, acting as the trier of law. Two components of the judicial process that are important to forensic accountants include procedures and evidence, both of which are discussed in later sections of this chapter. Outcomes (or verdicts) are determined by the trier of fact, which is the jury in a jury trial or the judge in a bench trial. Verdicts are (or are expected to be) decided based on the evidence presented during the trial.

9 of 79

Understanding—Legal Environment

Forms of justice

Civil justice (Justice concerned with the private affairs of citizens and their respective rights, including certain freedoms of speech and action and equal treatment, protection, and opportunities regardless of race, sex, or religion)
Criminal justice ( A system directly involved in the apprehension, (fear) prosecution, defense, sentencing, and supervision of those suspected of or charged with criminal offenses)

10 of 79

Understanding—Legal Environment

Forms of justice
Personal justice (Justice between parties to a dispute, regardless of any larger principles that might be involved)
Social justice(Justice that conforms to a moral principle (for example, all people are equal))
Substantial justice (Justice fairly administered according to the rules of substantive law (such as a fair trial)
Justice implies fair and equal treatment (rights and protections) within the judicial system

Law and Justice

U.S. citizens enjoy the constitutional promise of justice, which appears in the Preamble to the United States Constitution.

Justice is a profound concept generally defined by its context. For example, Black’s Law Dictionary defines multiple forms of justice:

• Civil justice. Justice concerned with the private affairs of citizens and their respective rights, including certain freedoms of speech and action and equal treatment,

protection, and opportunities regardless of race, sex, or religion.

• Criminal justice. A system directly involved in the apprehension, prosecution, defense, sentencing, incarceration, and supervision of those suspected of or charged

with criminal offenses.

• Personal justice. Justice between parties to a dispute, regardless of any larger principles that might be involved.

• Social justice. Justice that conforms to a moral principle (for example, all people are equal).

• Substantial justice. Justice fairly administered according to the rules of substantive law (such as a fair trial). In a legal setting, justice is

viewed as both a process and an outcome.

As a process, justice implies fair and equal treatment (rights and protections) within the judicial system. The judicial process is administered and managed by the court, acting as the trier of law. Two components of the judicial process that are important to forensic accountants include procedures and evidence, both of which are discussed in later sections of this chapter. Outcomes (or verdicts) are determined by the trier of fact, which is the jury in a jury trial or the judge in a bench trial. Verdicts are (or are expected to be) decided based on the evidence presented during the trial.

11 of 79

Describe the Classification (Categories) of Law and the Basic Structure (Three Stages) of a Civil Trial

Learning Objective 2

12 of 79

Classification of Law

13 of 79

International Law

International law is simply the set of rules that countries follow in dealing with each other. There are three distinct legal processes that can be indentified in International Law that include:
Public International Law (The relationship between sovereign states and international entities such as International Criminal Court),
Private International Law (Addressing questions of jurisdiction in conflict),
Supranational Law (The set of collective laws that sovereign states voluntarily yield to)

14 of 79

Substantive VS Procedural Law

Procedural law is the set of rules by which courts in the United States decide the outcomes of all criminal, civil, and administrative cases.
Substantive law describes how people are expected to behave according to accepted social norms.
Procedural laws govern how court proceedings dealing with the enforcement of substantive laws are conducted

15 of 79

Figure 2-1—Classification of Law

16 of 79

Classification of Law

Law can be classified into two categories:
Public law

Regulates the relationships of citizens with the state and serves to protect the public’s interest
Private Law
Regulates relationships between individual or entities within a state and serves to protect (or determine) their rights and liabilities

Law can be classified into two categories: public and private. Public law regulates the relationships of citizens with the state and serves to protect the public’s interest. The three major divisions of public law are criminal law, constitutional law, and administrative law. Sub-divisions that commonly involve forensic accountants include tax law, labor law, bankruptcy law, environmental law, banking law, and securities law. Private (or civil) law, on the other hand, regulates the relationships between individuals or entities within a state and serves to protect (or determine) their rights and liabilities. Divisions of private law that commonly involve forensic accountants include divorce law, contract law, tort law, property law, agency law, partnership law, corporate law, and sales law. Throughout this chapter, we will highlight similarities and differences between civil law and criminal law. As noted previously, civil (private) law defines and protects individual rights. In contrast, criminal law defines conduct prohibited by legislative bodies (that is, state or federal statutes) and thus serves to protect the authority and welfare of the state.

17 of 79

Public Law

Public law is concerned with the relationship between the state and its citizens
Major divisions

Criminal law
Constitutional law
Administrative law
Sub-divisions that commonly involve forensic accountants include tax law, labor law, bankruptcy law, environmental law, banking law, and securities law

18 of 79

Criminal Law

The criminal law is concerned with forbidding certain forms of wrongful conduct and punishing those who engage in the prohibited acts
In criminal cases you have a prosecutor who prosecutes a defendant in the criminal courts
The consequences of being found guilty are so serious that the standard of proof is higher than in civil cases
The allegations of criminal conduct must be proved beyond a reasonable doubt. If the prosecution is Successful, the defendant is found guilty (convicted) and may be punished by the courts

19 of 79

Criminal Law

Crime is considered an act against the public good
The defendant is the person accused of a crime
The prosecutor is the government attorney who presents the case in court against the defendant.
The plaintiff is the party that accuses a person of a crime
In criminal proceedings, the state or federal government, representing the public at large, is the plaintiff

20 of 79

Felonies

A felony is a major crime punishable by imprisonment or death. These include:
Murder is the intentional taking of a person’s life
Manslaughter is The unlawful killing of another human being without malice aforethought (predetermination)
Burglary is the breaking and entering of a house at night with the intent to commit a felony
Robbery is The wrongful taking and carrying away of the personal property of another
Arson is setting fire at property
Shoplifting is The act of stealing goods from a store

21 of 79

Misdemeanors

A less serious crime with less sever penalty is a misdemeanor. These include:
driving without a license
lying about one’s age to purchase alcohol
leaving the part of an automobile accident

22 of 79

Elements of Crime

A crime is defined by two elements:
Criminal Intent
the required state of mind
Criminal act
Most criminal statutes specifically explain conduct that is forbidden.
A criminal act must also involve voluntary conduct.

23 of 79

Constitutional Law

Constitutional law is concerned with the workings of the British constitution ,the composition and procedures of Parliament, the functioning of central and local government, citizenship and the civil liberties of individual citizens
A country’s constitution spells out the principles by which the government operates

24 of 79

Separation of Government Powers

The Legislative Branch
House of Representatives and Senate
The Executive Branch
President and Vice President
Powers of the President
Duties of the President
Impeachment or Accusation
The Judicial Branch
The judicial branch is one part of the government
The judicial branch is called the court system

25 of 79

The Legislative Branch�

In the House, representation is based on the number of people living in each state
Special Duties of the Legislature
In addition to making laws, the House and the Senate each have some special duties:
Senate can:
Vote on any treaties the President makes
Review and approve Presidential appointees, such as Cabinet Secretaries and Supreme Court justices

26 of 79

The Executive Branch�

The President’s duties are to:
Enforce federal laws and recommend new ones
Serve as commander in chief of the Armed Forces –Army, Navy, Air Force and Marines
Meet with leaders of other countries
Carrying out the laws of the United States is a big job!

27 of 79

�The Judicial Branch��

The judiciary is the third branch of any government
Function
Establishing facts – to establish and determine facts in order to deduce the truth
Interpreting laws – to apply the law to the
Creating laws – to create a new law in dealing with a case where the existing law may not be consistent with the present situation
Upholding the constitution – as a guardian of the Constitution especially in the Federal system
Preventing infraction of laws – performs the function of preventing infraction of laws and violation of human rights.
Judicial review – the Court has the power to declare any act of the legislature

28 of 79

�The Judicial Branch��

Disputes between citizens
Disputes between citizens and the various organs of the state
Disputes between States
Disputes between a State and the Federation

29 of 79

Administrative Law

Schemes have been introduced to help ensure a minimum standard of living for everybody
Administrative law, has developed to deal with the complaints of individuals against the decisions of the administering agency
Administrative law consists of those rules and procedures established by regulatory agencies
There are checks and balances on their power.

30 of 79

Administrative Law

Labor law—a set of laws and regulations that establish the legal rights of individuals and organizations in the marketplace.
Bankruptcy law—helps people who are unable to pay their obligations (debts) to achieve a fresh start by eliminating debt through the sale of assets
Environmental law—relates to how individuals and organizations impact the environment and establishes rules and/or limitations for such interaction.
Securities law—laws and regulations aimed at ensuring fairness in the buying and selling of securities

31 of 79

Private Law

Private law

Regulates relationships between individual or entities within a state and serves to protect (or determine) their rights and liabilities

Concerned with the rights and duties of individuals towards each other
Private law is also called civil law and is often contrasted with criminal law
Legal rules are generally divided into two categories: criminal and civil

32 of 79

Divisions of Private Law

Divisions of private law that commonly involve forensic accountants include:
Divorce law-dissolves a marriage and sets forth how the rights of each party are protected
Contract law
Tort law, property law,
Agency law, partnership law, corporate law, and sales law

33 of 79

Tort Law

Torts:
Intentional Torts when a person commits a wrong against another and knows and desires the consequences of his or her act.
Unintentional Torts when acting in a careless manner causes damage or injury
Negligence
Strict liability

34 of 79

Element of Negligence

Duty of care: Duty not to violate certain rights of others
Breach of duty : the failure to use the degree of care
Causation of Facts : the legal connection
the plaintiff’s injury : Actual harm

35 of 79

Divisions of Private Law

Agency law-deals with all aspects of relationships that occur when one person (agent) acts for, or represents, the interests of another (principal)
Partnership law-laws that deal with rights and obligations of a group that bands together for the purpose of promoting a product, service, or idea
Corporate law-deals with the rights and obligations that set forth how all stakeholders to a legal entity interact with such entity
Sales law-deals with the exchange of goods and services for value given and received

36 of 79

Civil Litigation

Civil litigation is the process of resolving private disputes through the court system
The litigation process usually results in a trial, or hearing, where the parties present their evidence to a judge or jury
When the parties are unable to resolve their disputes, they sometimes call on the legal system for help

37 of 79

Civil Litigation

Trial is the process of deciding a case (giving evidence, making arguments, deciding by a judge and jury, etc.), which occurs if the dispute is not resolved by pleadings, pretrial motions, or settlement
A trial usually takes place in open court, and may be followed by a judgment, an appeal

38 of 79

Different Types of Lawsuit

The following are some common types of civil lawsuits:
Personal injury litigation is the Litigation resulting from physical or emotional injuries
Types of personal injury litigation are auto- mobile accidents, accidents occurring on another’s property, product liability, and medical and other professional malpractice

39 of 79

Different Types of Lawsuit

Employment litigation is the Litigation related to employment disputes, such as claims of unlawful discharge or discrimination
Intellectual property litigation is the Litigation related to rights in intellectual property such as patents, trademarks, trade names, and copyrights

40 of 79

Different Types of Lawsuit

Construction litigation is the Litigation related to claims of faulty construction, damages may include claims for property damage
Business litigation is the Litigation related to general business matters, such as contract disputes and partnership disputes
Real estate litigation is the Litigation related to real property, such as ownership rights, possession rights, and landlord

41 of 79

The Litigation Process

Avoiding Litigation-may be avoided by compromise, mediation- or arbitration
Commencing an Action-occurs when a complaint is filed and a defendant is served
Preparing for Trial-pretrial conferences
Trying the Case-may involve jury selection and proceed to a trial
Executing a Judgment-The judgment is executed after it’s delivered
A writ of execution may be needed

42 of 79

Procedure: The Anatomy of a Trial

Different from what is shown on television shows or the movies , do not represent reality
The law is not fast, There is no one- or two-hour litigation. Rather, civil trials commonly last two days, following a year (or more) of pleadings.
Three stages

Pleading
Discovery
Trial

What most of us know about our justice system comes primarily from television shows or the movies. Such portrayals, however entertaining, do not represent reality. Our experience suggests at least five key differences:

The law is not fast. There is no one- or two-hour litigation. Rather, civil trials commonly last two days, following a year (or more) of pleadings.
There is rarely (if ever) a “gotcha” moment (such as “You can’t handle the truth!”). The discovery process (discussed in a later section) serves to eliminate such surprises at trial. Moreover, witnesses are generally well prepared by counsel.
TV shows are about drama. Given the extended discovery process, real trials (aside from the verdict) rarely provide much drama— that is, unless you are the plaintiff or defendant.
Jury selection and opening statements are the most important parts of a trial—not cross examination and closing arguments, as often represented on TV. Selecting who is responsible for rendering the verdict is, of course, paramount. Opening statements provide the first chance for the parties to connect with jurors and tell their sides of the story.
The role of the jury is not passive. Because jurors serve as the trier of fact, they must actively evaluate the evidence and decide who and what to believe. To operationalize these concepts, let’s consider the anatomy (or structure) of a civil trial, which includes three basic stages: pleading stage, discovery stage, and trial stage. As previously noted, a civil action is a non-criminal complaint involving private property rights.
The three stages of trial are: pleading, discovery, and trial.

43 of 79

�Procedure: Pleading Stage�

A civil proceeding starts with the filing of a complaint (or lawsuit)

Identifies the parties
Outlines facts and violations
Demand for relief

Defendant files answer

Failing to file may result in default judgment

Default judgment: binding judgment against a party based on some failure to take action

44 of 79

Pretrial Hearing

Pretrial Hearing
Before the actual trial takes place, a pretrial hearing usually occurs
This hearing is an informal meeting before a judge
It is intended to simplify the issues and discuss matters that might help dispose of the case

45 of 79

Procedure: Discovery Stage

Allows for gathering of information
discovery are employed to bring facts out before trial
Discovery allows for the gathering of information from the opposing party as well as third-party witnesses
The discovery process in a civil case is governed by the Rules of Civil Procedure.

Interrogatories, requests for production of documents
Subpoenas and depositions

In civil cases, process governed by Federal Rules of Civil Procedure (FRCP)

46 of 79

Procedure: Discovery Stage

Federal Rules of Civil Procedure (FRCP)

Rule 26(a)(2)

Disclosure of all experts (such as forensic accountants) expected to testify at trial

The disclosure is generally accompanied by the expert’s written report, the following elements:
A complete statement of all opinions of the witness
The facts or data considered by the witness
The witness’s qualifications
A list of all other cases in which the witness has testified
A statement of the compensation to be paid for the study and testimony in the case

Discovery Stage: In federal courts, the discovery process is governed by the Federal Rules of Civil Procedure (FRCP), specifically Rules 26–37.9. Although states may determine their own rules, most have adopted rules that are modeled after the FRCP. Rules of special interest to the forensic accountant include Rules 26(a)(2), 26(b)(1), 26(b)(4), and 26(e)(2).

Rule 26(a)(2)

This rule requires the disclosure of all experts (such as forensic accountants) expected to testify at trial. The disclosure is generally accompanied by the expert’s written report, which must contain the following elements:

• A complete statement of all opinions the witness will express, along with the basis

and reasons for them

• The facts or data considered by the witness in forming the opinions

• Any exhibits that will be used to summarize or support the opinions

• The witness’s qualifications, including a list of all publications authored in the preceding

ten years

• A list of all other cases in which the witness has testified as an expert (either at trial

or by deposition) during the preceding four years

• A statement of the compensation to be paid for the study and testimony in the case

Rule 26(b)(1)

This rule limits discovery to “non-privileged” information, thus excluding any privileged information.

Rule 26(b)(4)

This rule limits discovery of an expert’s communications with engaging counsel and any report drafts that may be prepared. It also limits discovery of facts and opinions held by an expert who is engaged to assist counsel in trial preparation (a consulting expert) but not expected to be called as a witness.

Rule 26(e)(2)

This rule requires a testifying expert to supplement his or her report to include any changes or additional information that has not been previously presented but is expected to be offered at trial. As explained previously, the rules of discovery not only identify the various methods by which certain information must be disclosed, but also prescribe means by which other information can be protected from disclosure. This may include information protected under the attorney–client privilege or work product doctrine, expert report drafts, and communications with engaging counsel. Given these complexities, the forensic accountant (whether a consulting or testifying expert) must have a working knowledge of the discovery process. This is necessary both to assist counsel in complying with the disclosure requirements and to avoid interfering with the protection of any privileged information. The rules also frame the testifying expert’s reporting duties and responsibilities. Violations or failures in this regard can damage the client’s case and possibly even result in court sanctions or malpractice allegations against the expert.

47 of 79

Procedure: Discovery Stage

Rule 26(b)(1)

Limits discovery to “non-privileged” information thus excluding any privileged information

Rule 26(b)(4)

Limits discovery of expert’s communications with counsel and any report drafts that may be prepared

Rule 26(e)(2)

Supplementing testifying expert with any changes or additional information
the forensic accountant (whether a consulting or testifying expert) must have a working knowledge of the discovery process.
Violations or failures can damage the client’s case and even result in court sanctions or malpractice allegations against the expert.

Rule 26(b)(1)

This rule limits discovery to “non-privileged” information, thus excluding any privileged information.

Rule 26(b)(4)

This rule limits discovery of an expert’s communications with engaging counsel and any report drafts that may be prepared. It also limits discovery of facts and opinions held by an expert who is engaged to assist counsel in trial preparation (a consulting expert) but not expected to be called as a witness.

Rule 26(e)(2)

This rule requires a testifying expert to supplement his or her report to include any changes or additional information that has not been previously presented but is expected to be offered at trial. As explained previously, the rules of discovery not only identify the various methods by which certain information must be disclosed, but also prescribe means by which other information can be protected from disclosure. This may include information protected under the attorney–client privilege or work product doctrine, expert report drafts, and communications with engaging counsel. Given these complexities, the forensic accountant (whether a consulting or testifying expert) must have a working knowledge of the discovery process. This is necessary both to assist counsel in complying with the disclosure requirements and to avoid interfering with the protection of any privileged information. The rules also frame the testifying expert’s reporting duties and responsibilities. Violations or failures in this regard can damage the client’s case and possibly even result in court sanctions or malpractice allegations against the expert.

48 of 79

Procedure: Trial Stage

Trial is the process of deciding a case (giving evidence, making arguments, deciding by a judge and jury, etc.), which occurs if the dispute is not resolved by pleadings, pretrial motions, or settlement. A trial usually takes place in open court, and may be followed by a judgment, an appeal, and so on.
Hearing, where the parties present their evidence to a judge or jury

Trial Stage

Following completion of discovery, the proceeding advances to the trial stage. In the case of a jury trial, this stage begins with the selection of a jury. The jury is selected through a process known as voir dire, wherein the judge and the attorneys question prospective jurors about their backgrounds and beliefs. As previously emphasized, the selection of the jury is a critical part of the trial. Generally, there are twelve jurors in a criminal case and six in a civil case. These individuals collectively serve as the trier of fact, with the responsibility of rendering the verdict. Following jury selection, the attorneys for both parties make their opening arguments (statements). The first to present is the plaintiff, whose opening statement serves to outline its theory of the case and any supporting evidence.

The plaintiff is followed by the defendant. After opening arguments, the plaintiff presents its witnesses, which the defendant may cross-examine. The plaintiff continues the presentation of its case (known as the “case in chief”) until complete. A similar process is then followed by the defendant. After the defendant completes its presentation, the plaintiff is afforded an opportunity for rebuttal witnesses, which is then followed by the defendant’s opportunity for sub-rebuttal witnesses. Closing arguments are the last opportunity for the parties to summarize the testimony and highlight key points Following closing arguments and instructions by the judge, the case proceeds to jury deliberation. During this time, the jurors collectively evaluate the evidence to render a verdict.

49 of 79

Procedure: Trial Stage

Selection of jury

Selected through a process known as voir dire
The jury is selected through a process known as voir dire, wherein the judge and the attorneys question prospective jurors about their backgrounds and beliefs.

Opening arguments by both parties
Plaintiff presents case and its witnesses
Defendant presents case
Closing arguments by both parties
Verdict : In civil case liable or not liable (for damages)

50 of 79

Structure of a Criminal Case

Criminal complaint with investigator’s affidavit that summarizes the evidence against the defendant
First appearance—arraignment (the defendant is informed of the charges and advised of his rights

Defendant informed of charges and rights
Defendant pleas to the charge guilty or not guilty
Discovery stage
The trial stage
Defendant found guilty
The verdict in a criminal case (guilty or not guilty)
Sentencing stage

The basic structure of a criminal case is similar to that of a civil case, with the addition of a fourth stage—sentencing. Criminal cases are initiated with a criminal complaint accompanied by an investigator’s affidavit that summarizes the evidence against the defendant. During the first appearance (arraignment), the defendant is informed of the charges and advised of his or her rights. At this time, the defendant also enters a plea to the charge or charges—guilty or not guilty. This is followed by the discovery stage and the trial stage, as discussed previously. If the defendant is found not guilty, the case is over; if found guilty, the case then moves to the sentencing stage. The verdict in a criminal case (guilty or not guilty) differs from the verdict in a civil case, wherein the defendant is found either liable or not liable (for damages). Prior to sentencing by the court, the case is evaluated by the probation department, which prepares a pre-sentence report (PSR). The PSR summarizes the case (including the crime, the case facts, and the offender’s profile) and offers a recommendation for sentencing.

51 of 79

Table 2-1 : Comparison of Civil and Criminal Actions

52 of 79

Explain the Concepts of Burden of Proof and Standard of Proof

Learning Objective 3

53 of 79

TYPES OF COURTS

High Court or Supreme Court
This is the highest Court in Australia
This court hears matters in relation to the meaning of the constitution

54 of 79

TYPES OF COURTS

Supreme Court or State Court
Supreme Court – This is the highest state court and has two divisions, the Trial Division and Court of Appeal. The Court of Appeal deals with cases heard in lower courts and cases are heard by three or five judges.
Trial Courts or District Court
The civil litigation process usually begins in a trial court where the parties to a lawsuit file their pleadings and present evidence to a judge or jury. Trial courts are also called lower courts

55 of 79

TYPES OF COURTS

Courts of Appeals
Courts of appeals are primarily courts of review. These courts examine the trial court proceedings to guarantee that the parties receive a fair trial. A case is not retried in an appellate court. The appellate courts review the trial court’s process by reviewing a written, verbatim transcript or record of the lower court proceedings
supreme court
The highest of the United States courts and the highest court of most

56 of 79

�Burden of Proof and Alternative Dispute Resolution�

Burden of proof

The burden of proof is the obligation of the plaintiff or prosecution to prove liability (in a civil case) or guilt (in a criminal case
The defendant is not required to prove his or her innocence
Defendant presumed innocent

Burden and Standards of Proof

The burden of proof is the obligation of the plaintiff or prosecution to prove liability (in a civil case) or guilt (in a criminal case). The defendant is not required to prove his or her innocence—it is presumed.

Alternative Dispute Resolution

Litigation is not the only means for settling disputes between parties. Forensic accountants may also participate in alternative dispute resolution (ADR), the most common forms of which are mediation and arbitration. Mediation is a non-binding informal process wherein a mediator (mutually selected by the parties) evaluates the arguments of both sides and helps the parties reach common ground. If mediation fails, the parties may proceed with litigation. Arbitration, on the other hand, is a “mini trial” wherein each party presents its case to one or more arbitrators, who render a binding decision that generally cannot be appealed. Arbitration is often voluntary but can also be mandatory (required by a statute or a contract between the parties). ADR may be preferred over litigation because it is less expensive, is generally faster, and allows for greater privacy. Moreover, ADR is often used in disputes regarding complex or technical issues, because mediators or arbitrators with the necessary expertise can be selected.

57 of 79

Alternative Dispute Resolution

Litigation is not the only means for settling disputes between parties, Forensic accountants may also participate in (ADR),
the most common forms of which are mediation and arbitration
Alternative Dispute Resolution (ADR)

Mediation
Arbitration

Alternative Dispute Resolution

Litigation is not the only means for settling disputes between parties. Forensic accountants may also participate in alternative dispute resolution (ADR), the most common forms of which are mediation and arbitration. Mediation is a non-binding informal process wherein a mediator (mutually selected by the parties) evaluates the arguments of both sides and helps the parties reach common ground. If mediation fails, the parties may proceed with litigation. Arbitration, on the other hand, is a “mini trial” wherein each party presents its case to one or more arbitrators, who render a binding decision that generally cannot be appealed. Arbitration is often voluntary but can also be mandatory (required by a statute or a contract between the parties). ADR may be preferred over litigation because it is less expensive, is generally faster, and allows for greater privacy. Moreover, ADR is often used in disputes regarding complex or technical issues, because mediators or arbitrators with the necessary expertise can be selected.

58 of 79

Mediation and Arbitration

Mediation is a non-binding informal process wherein a mediator (mutually selected by the parties) evaluates the arguments of both sides and helps the parties reach common ground. If mediation fails, the parties may proceed with litigation
Mediation is a form of settlement that uses a third person, known as a mediator, to help the parties come to an agreement to settle their differences

Mediation is a non-binding informal process wherein a mediator (mutually selected by the parties) evaluates the arguments of both sides and helps the parties reach common ground. If mediation fails, the parties may proceed with litigation. Arbitration, on the other hand, is a “mini trial” wherein each party presents its case to one or more arbitrators, who render a binding decision that generally cannot be appealed. Arbitration is often voluntary but can also be mandatory (required by a statute or a contract between the parties). ADR may be preferred over litigation because it is less expensive, is generally faster, and allows for greater privacy. Moreover, ADR is often used in disputes regarding complex or technical issues, because mediators or arbitrators with the necessary expertise can be selected.

59 of 79

Mediation and Arbitration

Arbitration, on the other hand, is a “mini trial” wherein each party presents its case to one or more arbitrators
Arbitration is an out-of-court process in which a neutral party, known as an arbitrator, hears both sides of the dispute and then makes a decision
Negotiation involves the disputing parties discussing their problems with one another and—it is hoped—reaching an agreement or settlement of those problems

60 of 79

ADR

ADR may be preferred over litigation

it is less expensive, is generally faster
It allows for greater privacy
Moreover, ADR is often used in disputes regarding complex or technical issues, because mediators or arbitrators with the necessary expertise can be selected.

61 of 79

Describe the Court’s Gatekeeping Role in Determining the Admissibility of Evidence

Learning Objective 4

62 of 79

Evidence and the Expert

The trial judge runs the courtroom and makes all legal rulings, including those regarding the admissibility of evidence
Court’s gatekeeping role ,judges are obligated only to prevent the jury from hearing unreliable testimony

Opinion testimony discouraged
Hearsay evidence excluded
Rules of evidence

Govern if, when, how, and for what purpose evidence is allowed to be presented to the trier of fact for consideration

The trial judge runs the courtroom and makes all legal rulings, including those regarding the admissibility of evidence. In general, the rules of evidence put a premium on first-hand observations. Opinion testimony is discouraged except under certain circumstances (expert testimony), and hearsay evidence is generally excluded. The court’s role as a gatekeeper for evidence is paramount, especially in the world of forensic accounting. The rules of evidence allow expert witnesses greater latitude than other witnesses to testify based on evidence (such as hearsay evidence) that would not otherwise be admissible. Moreover, a higher level of credibility is generally attached to an expert’s testimony. As explored in the following section, the trial judge is challenged to carefully qualify both the expert and his or her testimony.

Rules of Evidence

The rules of evidence may vary from jurisdiction to jurisdiction and even from court to court (such as criminal, civil, or family court). However, most state rules of evidence are based on the Federal Rules of Evidence (FRE). The purpose of the FRE is stated in Rule 102,which reads as follows: These rules should be construed so as to administer every proceeding fairly, eliminate unjustifiable expense and delay, and promote the development of evidence law, to the end of ascertaining the truth and securing a just determination. Simply stated, the purpose of the FRE is to seek justice and truth in a fair and reasonable manner.

63 of 79

Evidence and the Expert

Evidence: Something that tends to prove or disprove the existence of an alleged fact

Relevant evidence

Tendency to make a fact more or less probable
Of consequence in determining the action

Probative value: Evidence be sufficiently useful to help prove something during the course of a trial

64 of 79

Identify the Rules of Evidence that Address Expert Testimony and the Specific Criteria for the Admissibility of Expert Testimony

Learning Objective 5

65 of 79

Evidence Rules—Expert Witness Testimony

Rule 702

Allows the testimony of an expert witness if of assistance to trier of fact (judge or jury)

Rule 703

Latitude (Autonomy) allowed to expert witness (Not such as hearsay)

Rule 704

Allows to testify areas decided by fact finder(for example, valuation of a business in a divorce action).

Rule 705

Allows expert witness to state an opinion without first testifying

Evidence Rules Dealing Specifically with Experts

Several evidence rules specifically address expert witness testimony and thus are of special interest to the forensic accountant: Rules 702, 703, 704, and 705.

Rule 702

Rule 702 allows the testimony of an expert witness if it will assist the trier of fact (judge or jury) through the maze of “scientific, technical, or other specialized knowledge.” Under this rule, expert testimony is admissible only if it meets three specific criteria:

• The testimony is based on sufficient facts or data.

• The testimony is the product of reliable principles and methods.

• The principles and methods have been applied reliably to the facts of the case.

Expert witnesses are usually qualified at the beginning of direct examination. Qualification is based on the expert’s specialized knowledge, skill, experience, training, or education. Importantly, all five are not required.

Rule 703

Rule 703 allows an expert witness a considerable degree of latitude regarding the facts or data upon which his or her opinions are based. These facts or data need not be admissible as evidence themselves (such as hearsay), as long as they are of a type that is reasonably relied upon by experts in that field.

Rule 704

Rule 704 allows an expert to testify on areas that embrace an ultimate issue to be decided by the fact finder (for example, valuation of a business in a divorce action).

Rule 705

Rule 705 allows an expert to state an opinion without first testifying to the underlying facts or data, with the understanding that the opinion is subject to cross-examination. This cross-examination is important because an expert’s opinion is only as good as the facts, assumptions, data, and methodology upon which it is based.

Expert Methodology

As previously discussed, an expert can expect his or her opinions, and the underlying foundation (facts, data, and methodology), to be thoroughly challenged by opposing counsel. An expert’s methodology may be challenged in two ways:

• As unreliable “junk science.” Because this type of challenge is a matter of law, it requires a Daubert ruling by the judge (discussed in the following section).

• As a legitimate area for cross-examination. Even if the judge allows an expert to testify, his or her testimony is still subject to cross-examination.

66 of 79

Describe the Purpose and Process of a Daubert Challenge, and Identify the Factors that Should Be Considered when Evaluating Expert Testimony

Learning Objective 6

67 of 79

Expert Methodology

Daubert challenge

A special hearing Conducted before the trial judge to determine the relevance and reliability of an expert’s opinion
The expert must be qualified in the relevant field, and the expert’s opinion must be the product of sufficient relevant facts and data
Daubert established that a trial court judge has the duty to act as a “gatekeeper” under the FRE to ensure the scientific validity of the expert’s testimony
Purpose is to measure the validity of expert’s opinion

A Daubert challenge is a special hearing conducted before the trial judge to determine the relevance and reliability of an expert’s opinion—that is, to rule on its admissibility. For an expert’s opinion to satisfy the reliability requirement, the expert must be qualified in the relevant field, and the expert’s opinion must be the product of sufficient relevant facts and data, reliable methodology, and the reasonable application of the methodology to the case facts.

Daubert established that a trial court judge has the duty to act as a “gatekeeper” under the FRE to ensure the scientific validity of the expert’s testimony. Moreover, it set forth several factors that should be considered when evaluating expert testimony:

• Whether the methodology employed has been tested

• Whether the theory has been peer-reviewed

• What the known or potential error rate of the method is

• How well accepted the methodology is within the professional community

• Whether the expert’s methodology existed before the subject litigation began

As provided in Daubert, the “court must focus on the methodology, not on the conclusions generated by the methodology.” In other words, a Daubert hearing is not to decide whether the expert is correct. Opposing evidence (including opposing expert opinions) and cross-examination are traditional and appropriate means of attacking dubious but admissible expert testimony.

The Daubert Trilogy

Four years after Daubert, in G.E. v. Joiner (1997), the Supreme Court limited appellate review of the trial court’s decision to admit or exclude expert testimony. Later, in Kumho Tire v. Carmichael (1999), the Supreme Court directed that the Daubert factors be applied to all expert testimony, including testimony of a non-scientific nature (such as forensic accounting). In this ruling, the Supreme Court also granted trial courts freedom to consider other factors. Together, these three cases, known as the “Daubert trilogy,” serve to interpret Rule 702.

68 of 79

Expert Methodology

Set forth several factors to be considered when evaluating expert testimony
Whether the methodology employed has been tested
Whether the theory has been peer-reviewed
How well accepted the methodology is within the professional community
Whether the expert’s methodology existed before the subject litigation began

69 of 79

Daubert Hearing

Daubert hearing is not to decide whether the expert is correct
Opposing evidence (including opposing expert opinions) and cross-examination are traditional and appropriate means of attacking dubious but admissible expert testimony.

Judge acts as a gatekeeper

The Daubert Trilogy

Applied to all expert testimony including testimony of a non-scientific nature (such as forensic accounting)

As provided in Daubert, the “court must focus on the methodology, not on the conclusions generated by the methodology.” In other words, a Daubert hearing is not to decide whether the expert is correct. Opposing evidence (including opposing expert opinions) and cross-examination are traditional and appropriate means of attacking dubious but admissible expert testimony.

The Daubert Trilogy

Four years after Daubert, in G.E. v. Joiner (1997), the Supreme Court limited appellate review of the trial court’s decision to admit or exclude expert testimony. Later, in Kumho Tire v. Carmichael (1999), the Supreme Court directed that the Daubert factors be applied to all expert testimony, including testimony of a non-scientific nature (such as forensic accounting). In this ruling, the Supreme Court also granted trial courts freedom to consider other factors. Together, these three cases, known as the “Daubert trilogy,” serve to interpret Rule 702.

70 of 79

Identify the Requisite Elements for �Establishing Attorney–Client Privilege

Learning Objective 7

71 of 79

Privileged Communication

Privileged communication is a legal principle that protects communications taking place within a protected relationship
A privilege is a legal rule that protects communications within certain relationships from compelled disclosure in a court proceeding
Privileged communication is an interaction between two parties in which the law recognizes a private, protected relationship. Whatever is communicated between the parties remains Confidential, and the law cannot force their disclosure.

Privileged communication is a legal principle that protects communications taking place within a protected relationship. Commonly recognized protected relationships include attorney–client, husband–wife, doctor–patient, and clergyman–penitent. The privilege is a legal right of the source (for example, the client or patient rather than the lawyer or doctor). The underlying theory of privileged communication, articulated by the U.S. Supreme Court in Upjohn Co. v. United States (1981), is that in certain instances, society is best served by the suppression (protection from disclosure) of information. Suppression of information, however, is inconsistent with the general duty to disclose and is thus closely guarded by the courts. As previously discussed, in the discovery phase of civil litigation, each party is obligated to disclose to the opposing party all relevant and nonprivileged evidence it proposes to use at trial, whether favorable or unfavorable.

72 of 79

Privileged Communication

Commonly recognized protected relationships include:

Attorney–Client Privilege
husband–wife
doctor–patient
The privilege is a legal right of the source (for example, the client or patient rather than the lawyer or doctor)
Society is best served by the suppression (protection from disclosure) of information

Privileged communication is a legal principle that protects communications taking place within a protected relationship. Commonly recognized protected relationships include attorney–client, husband–wife, doctor–patient, and clergyman–penitent. The privilege is a legal right of the source (for example, the client or patient rather than the lawyer or doctor). The underlying theory of privileged communication, articulated by the U.S. Supreme Court in Upjohn Co. v. United States (1981), is that in certain instances, society is best served by the suppression (protection from disclosure) of information. Suppression of information, however, is inconsistent with the general duty to disclose and is thus closely guarded by the courts. As previously discussed, in the discovery phase of civil litigation, each party is obligated to disclose to the opposing party all relevant and nonprivileged evidence it proposes to use at trial, whether favorable or unfavorable.

73 of 79

Privileged Communication

Attorney–Client privilege

Client’s right to refuse to disclose and to prevent any other person from disclosing confidential communications between the client and the attorney
The requisite elements of communication must

Relate to the rendering of legal services
Be made in confidence
Be made to a person the client believed was an attorney

Attorney–Client Privilege

Attorney–client privilege, the oldest of the protected privileges in law, is defined as the “client’s right to refuse to disclose and to prevent any other person from disclosing confidential communications between the client and the attorney.” The requisite elements for establishing privilege include a communication that:

• Relates to the rendering of legal services,

• Is made in confidence, and

• Is made to a person the client reasonably believed was an attorney.

The attorney–client privilege is intended to encourage individuals involved in legal disputes to be candid with their attorneys, thus enabling the attorneys to give sound legal advice. Once the attorney–client privilege has been established, it may be extended to non-attorneys (such as subordinates and consulting experts) who assist attorneys in rendering legal advice or services.

The Work Product Doctrine (1947) provides protection from discovery of documents, interviews, statements, and other items prepared by an attorney in anticipation of trial. The work product doctrine allows lawyers to prepare for litigation without risk that their work will be revealed to court adversaries. Consistent with the rules governing attorney–client privilege, the work product doctrine can be extended to items prepared by non-attorneys who assist in rendering legal services.

Extending Attorney–Client Privilege and the Work Product Doctrine

Communications between attorneys and consulting experts are generally protected under the attorney–client privilege and/or work product doctrine. Until recently, no such protection was afforded to communications with a testifying expert. This changed in December 2010, when FRCP 26(b)(4) was amended to allow the extension of work product protection to most attorney–expert communications and to all draft expert reports. This was a highly practical change, which served to reduce the cost of litigation and make the process more efficient.

74 of 79

Work product doctrine�

Work product doctrine

provides protection from discovery of documents, interviews, statements, and other items prepared by attorney in anticipation of trial
The work product doctrine allows lawyers to prepare for litigation without risk that their work will be revealed to court adversaries
Communications between attorneys and consulting experts are generally protected under the attorney–client privilege and/or work product doctrine

The Work Product Doctrine (1947) provides protection from discovery of documents, interviews, statements, and other items prepared by an attorney in anticipation of trial. The work product doctrine allows lawyers to prepare for litigation without risk that their work will be revealed to court adversaries. Consistent with the rules governing attorney–client privilege, the work product doctrine can be extended to items prepared by non-attorneys who assist in rendering legal services.

Extending Attorney–Client Privilege and the Work Product Doctrine

Communications between attorneys and consulting experts are generally protected under the attorney–client privilege and/or work product doctrine. Until recently, no such protection was afforded to communications with a testifying expert. This changed in December 2010, when FRCP 26(b)(4) was amended to allow the extension of work product protection to most attorney–expert communications and to all draft expert reports. This was a highly practical change, which served to reduce the cost of litigation and make the process more efficient.

75 of 79

Working with Attorneys

An effective forensic accountant must have an open and honest working relationship with engaging counsel

Communication must be a clear understanding of what the forensic accountant has been engaged to do
the nature of case (federal v. state or civil v. criminal), and the payment of fees
Respect must be mutual respect between the parties in their specific roles

Working with Attorneys

In addition to the rules and principles previously discussed, another key element of the legal framework is working with attorneys. An effective forensic accountant must have an open and honest working relationship with engaging counsel. There are, of course, many keys to maintaining such a relationship. Our top five include the following:

• Communication. There must be a clear understanding of what the forensic accountant has been engaged to do, the timeline in which the work is expected to be completed, the nature and venue of the case (federal v. state or civil v. criminal), and the payment of fees. This understanding should be clearly articulated in an engagement letter executed by both parties.

• Respect. There must be mutual respect between the parties in their specific roles. It is understood that lawyers advocate for their clients—with the intent of winning. In contrast, a testifying expert advocates for his or her opinion. The forensic accountant, when serving as an expert witness, must remain neutral and objective—that is, outside the influence of engaging counsel.

• Responsiveness. The forensic accountant must be responsive throughout the engagement, from the gathering and analysis of data to the timely development and

presentation of the final report. The attorney must also be responsive in providing the expert with any requested information and promptly advising of schedule

changes.

• Responsibility. The forensic accountant has a responsibility to the engaging attorney to exercise competence and due professional care in the development and presentation of his or her opinions. Moreover, the forensic accountant has a responsibility to the court to develop and present opinions honestly and objectively.

• Ethical obligations. In almost every case, some “gray area” will arise that must be resolved in a fair and ethical manner. To avoid a claim of “adversarial bias,” a common practice is to resolve such issues in favor of the opposing party. Because there is often no clear answer, these concerns must be openly discussed with engaging counsel.

76 of 79

Working with Attorneys

Responsiveness: the forensic accountant must be responsive throughout the engagement, from the gathering and analysis of data to the timely development and presentation of the final report
Responsibility The forensic accountant has a responsibility to the engaging attorney
Ethical obligations ,In almost every case, some “gray area”(compromise) will arise that must be resolved in a fair and ethical manner
To avoid a claim of “adversarial bias,” a common practice is to resolve such issues in favor of the opposing party

77 of 79

Questions to be Asked

What is Law
List Basic Functions of Low
What is justice
Explain Forms of justice each
Describe the Classification (Categories) of Law
Describe Classification of the Substantive law
Explain types of Crime
Explain Elements of Crime

78 of 79

Questions to be Asked

Describe Separation of Government Powers
Distinguish Private and public Law
Explain element of negligence
Disuse different types of Lawsuit (civil litigation )
Discuss Structure or The Anatomy of a Trial Stages
Distinguish Civil and Criminal Actions
Discuss Alternative Dispute Resolution

1 of 79

2 of 79

3 of 79

4 of 79

5 of 79

6 of 79

7 of 79

8 of 79

9 of 79

10 of 79

11 of 79

12 of 79

13 of 79

14 of 79

15 of 79

16 of 79

17 of 79

18 of 79

19 of 79

20 of 79

21 of 79

22 of 79

23 of 79

24 of 79

25 of 79

26 of 79

27 of 79

28 of 79

29 of 79

30 of 79

31 of 79

32 of 79

33 of 79

34 of 79

35 of 79

36 of 79

37 of 79

38 of 79

39 of 79

40 of 79

41 of 79

42 of 79

43 of 79

44 of 79

45 of 79

46 of 79

47 of 79

48 of 79

49 of 79

50 of 79

51 of 79

52 of 79

53 of 79

54 of 79

55 of 79

56 of 79

57 of 79

58 of 79

59 of 79

60 of 79

61 of 79

62 of 79

63 of 79

64 of 79

65 of 79

66 of 79

67 of 79

68 of 79

69 of 79

70 of 79

71 of 79

72 of 79

73 of 79

74 of 79

75 of 79

76 of 79

77 of 79

78 of 79

79 of 79