CPA Expert Witness Testimony in Breach of Contract Cases

The financial measure at issue can vary significantly depending on the nature of the agreement and the damages claim being advanced. Once the applicable framework has been identified, we evaluate the financial information necessary to calculate the claimed amount.

Depending on the engagement, our analysis may involve:

• Lost profits or other lost economic benefits
• Costs incurred or expenditures made in connection with the alleged breach
• Costs to complete, repair, replace, or obtain substitute performance
• Amounts due or unpaid under the agreement
• Contractually defined financial measures or calculations
• Other economic losses requiring financial quantification

The methodology depends on the financial measure at issue. Depending on the engagement, we may analyze historical financial performance, actual costs incurred, contractual pricing and payment terms, budgets and forecasts, and other financial information relevant to the calculation.

Where the analysis requires estimating a financial result that did not occur, we evaluate the assumptions used and their support in historical performance, contemporaneous projections, market information, or other available data. We also consider the relevant measurement period and financial factors such as avoided costs, offsets, and mitigation where applicable.

The analysis may also require consideration of other financial or economic developments during the relevant period that could have affected the claimed loss independently of the alleged breach.

Where the measure is a reduction in the value of a business rather than a loss of profits, the analysis is a valuation, performed within the frameworks described under business valuation.

The agreement may contain terms that affect the damages calculation, including pricing and payment provisions, defined financial measures or formulas, liquidated-damages provisions, damages caps, and other terms relevant to the amount being calculated.

Counsel determines the interpretation and legal effect of the applicable contract terms. Based on that framework, we analyze the underlying financial information and quantify the relevant amounts.

For example, where an agreement establishes a payment, formula, or threshold based on revenue, EBITDA, units sold, costs incurred, or another financial measure, we analyze the applicable financial records and calculate the resulting amount.

A supportable damages analysis depends on the quality and relevance of the available financial information. The records required vary depending on the business, agreement, damages measure, and period under analysis.

Relevant information may include:

• The agreement and relevant amendments, schedules, or statements of work
• Historical financial statements and tax returns
• General ledger and other accounting records
• Invoices, purchase orders, and payment records
• Budgets, forecasts, and other financial projections
• Sales, customer, and product information
• Payroll, cost, and expense records
• Operational information relevant to the calculation
• Information relevant to mitigation, offsets, or avoided costs

We compare information across available sources where appropriate and identify inconsistencies or gaps that may affect the analysis. If information necessary to support a calculation is unavailable, we identify the limitation and consider whether other financial records provide a reasonable basis for the analysis.

As discovery progresses and additional information becomes available, we can evaluate whether the new information affects the calculation or the assumptions underlying it.

Where records are incomplete and the underlying activity has to be reconstructed before it can be measured, that work is forensic accounting.

In some breach of contract matters, the claimed economic loss includes profits the business allegedly would have earned absent the breach. A lost profits analysis quantifies the claimed lost profits by comparing the financial performance that would have been expected absent the alleged breach with the financial performance that actually occurred.

Depending on the circumstances, the analysis may consider revenue, incremental and avoided costs, the applicable loss period, mitigation, and other factors affecting profitability.

For additional information regarding the analysis and quantification of lost profits, see our Lost Profits Analysis page.

Breach of contract matters may involve opposing side damages calculations. We can independently review an analysis prepared by another expert or party to understand the basis for the claimed amount and evaluate whether the financial conclusions are supported by the underlying analysis.

Our review may address:

• The methodology applied
• Significant assumptions and financial projections
• The measurement period
• Revenue, cost, and other inputs used in the calculation
• Treatment of avoided costs, offsets, and mitigation
• Mathematical accuracy of the calculation
• Consistency with the underlying financial records and other supporting information

Where our analysis differs from another expert’s damages calculation, we quantify the effect of those differences on the resulting damages amount.

Where the difference between two calculations has to be explained in a deposition or at trial, that is testimony by a CPA expert witness.

Insight Forensic & Valuation Services provides independent financial analysis throughout the litigation process. Depending on the engagement, our work may include assisting counsel with financial discovery and document requests, performing damages calculations, analyzing financial records produced through discovery, reviewing opposing expert analyses, and preparing expert reports or other required disclosures.

When deposition or trial testimony is required, our experts explain the financial information considered, the analytical procedures performed, the assumptions used, and the basis for our opinions and conclusions. Our focus is on presenting complex financial issues in a manner that can be understood and traced to the underlying financial information.

Throughout the engagement, we remain focused on the financial issues within our area of expertise. We provide opinions regarding the financial analysis and amounts at issue while leaving questions of contract interpretation, liability, causation, and other legal determinations to counsel.