Page 11 - Acertaining Economic Damages Calculation

Practice Aid Introduction

As discussed in the AICPA Forensic and Valuation Services practice aid, Attaining Reasonable Certain-
ty in Economic Damages Calculations, published in 2015, although most courts in the United States re-
quire that lost profits be proven with reasonable certainty, there is no absolute test that specifically es-
tablishes what constitutes reasonable certainty. The calculation of lost profits typically requires damages
experts to consider facts and circumstances specific to that case, a process that is subject to the review
and discretion of judges who may be required to rule on the admissibility of the experts’ methodologies
and opinions.

The objective of the first Attaining Reasonable Certainty in Economic Damages Calculations practice
aid was to do the following:

• Expand upon existing literature and raise awareness concerning those aspects of a damages cal-
culation in which the concept of reasonable certainty is most likely to be scrutinized

• Help practitioners understand the expectations courts impose upon experts as a result of, for ex-
ample, Rule 702 of the Federal Rules of Evidence (FRE 702), or comparable tests applied at the
state level

• Enhance the AICPA’s existing literature for practitioners performing economic damages calcula-
tions

In addressing these issues, chapter 1, "The Principle of Reasonable Certainty," discussed the concept of
reasonable certainty, the legal framework, rules, questions, and applications often cited in judicial opin-
ions, and some of the factors and considerations that damages experts faced in rendering their opinions.
Chapter 2, "Client-Supplied Information," addressed issues confronted by damages experts when infor-
mation integral to the damages analysis was provided by the client or retaining counsel. Chapter 3,
"Causation Considerations," addressed the extent to which issues of proximate cause or causation have
been addressed by the damages expert. Chapter 4, "Newly Established Businesses," examined the myri-
ad of circumstances faced by such enterprises and common responses by damages experts, including an
extensive analysis of factors considered by courts to establish the reliability of benchmark data.

At the time the first reasonable certainty practice aid was released, it was contemplated that additional
topics of relevance to the reasonable certainty standard would be addressed in future publications. This
second practice aid, Attaining Reasonable Certainty in Economic Damages Calculations: Revenues,
Costs, and Best Evidence, addresses three specific topics in economic damages calculations, with a spe-
cial focus on case law as illustrative of the issues, particularly in regard to these topics:

• Chapter 1, "Revenue and Growth Rates," looks at approaches employed by damages experts to
prepare lost revenues as a component of economic damages and the extent to which those ap-
proaches have been accepted or excluded by the courts using a reasonable certainty overlay.

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