Sheri Fiske Schultz, left, and Katie Gilden, right.

Expert witness testimony can make or break a case. But, what are the rules governing whether an expert is allowed to testify? For many years, Florida has vacillated on which standard applies to experts. However, the Florida Supreme Court adopted the Daubert standard for expert testimony in Florida courts May 23.

Previously, the Florida Evidence Code utilized the Frye standard for admitting expert testimony. Under Frye, also known as the “general acceptance test,” expert opinion based on a scientific technique is not admissible unless the technique is generally accepted as reliable in the field.

In contrast, U.S. federal courts (and most states) have utilized the Daubert standard for decades. Daubert goes beyond the general acceptance test, and considers several other factors, including: whether the methodology has been tested; whether it has been subjected to peer review and publication; and its known or potential rate of error. Under Daubert, the trial court assumes more of a “gatekeeper” role regarding expert testimony. The million dollar question is: How heavy is the hand on the gate?

PriceWaterhouseCoopers (PWC) has studied Daubert challenges to financial expert witnesses for the past 18 years (see “Daubert Challenges to Financial Experts—A Yearly Study of Trends and Outcomes,” 2000-2017, hereinafter referred to as the study). While the Daubert opinion dates back to 1993, in 1999 the U.S. Supreme Court ruled (in Kumho Tire v. Carmichael) that the Daubert criteria were applicable to all types of expert testimony, including financial expert testimony. The PWC study only includes federal court cases which cite Kumho Tire. While this study may be limited, PWC's detailed analysis of Daubert exclusions can provide insights to financial experts and attorneys that may ultimately draw parallels within the Florida court system.

According to PWC's annual study, of the 206 Daubert challenges in 2017, 48% were successful, (meaning the expert was fully excluded or partially excluded). Exclusion rates were the highest in cases involving securities litigation, intellectual property, and fraud. Furthermore, when financial experts were excluded, lack of reliability was the primary reason for exclusion.

So, what does that mean for the CPA acting as an expert witness? Interestingly, there are striking similarities between the professional standards promulgated by the American Institute of Certified Public Accountants (AICPA), and the Federal Rules of Evidence. Terminology utilized in the Federal Rules of Evidence—and now echoed in Florida's Rules of Evidence—include terms such as “reliable” and “sufficient data.” These nomenclatures are the backbone of a CPA's professional standards.

For example, under AICPA General Standards Rule 1.300.001, a member must “obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.”As cited in PWC's study, when the exclusion of a financial expert was due to lack of reliability, courts most frequently cited lack of sufficient data or use of methods that are not generally accepted as the reasons for exclusions. Therefore, it stands to reason that a CPA who is properly adhering to his or her own professional standards would reasonably pass muster under the Daubert standard, now applicable in Florida.

But, what if a financial expert is ultimately excluded? As PWC points out, in the past a Daubert exclusion could mean “the end of the road” for the expert witness. However, there have been several instances in which courts allowed experts to remedy challengeable issues by submitting a revised report. Furthermore, appellate courts agreed less often with the trial courts where the lower court excluded the expert. Meaning, more often courts are leaning towards allowing the expert testimony—allowing flaws to go to the weight of the evidence and be addressed through cross-examination rather than altogether excluding the expert opinion.

Ultimately, a CPA expert witness in Florida should hold fast to her professional standards and be cognizant of the law change in the state. Only time will tell how heavy a hand Florida courts will have under Daubert.

Katie Gilden is a principal in the forensic accounting and litigation services practice at Fiske & Co., a South Florida accounting firm. Sheri Fiske Schultz is managing director at the firm.