Page 34 - Calculating Lost Profits

Understand the Allegations

Normally, a lost profits calculation will need to be performed before there has been a determination that
the defendant violated the law and perpetrated the alleged wrongful acts. As such, the damages expert
may need to perform alternative calculations accounting for different liability determinations and com-
binations. Court filings typically contain useful context and information — albeit from the perspective
of an attorney acting as an advocate — for identifying the various lost profits analyses that may need to
be performed. The practitioner should review filings in the litigation to obtain an initial understanding of
the dispute and issues that should be addressed in the damages analysis. Potentially useful pleadings
may include

 the operative complaint, as well as possibly the original complaint and any amended complaints,
if applicable;

 answers filed in response to the complaint;

 counterclaims and associated answers and responses;

 interrogatories posed and related responses thereto;

 requests for admissions and related responses thereto;

 motions (for example, motions in limine and motions for summary judgment) filed and any asso-
ciated responses or rulings; and

 other briefs (for example, mediation briefs).

Understand the Agreements and Contracts

It is frequently important to read and understand any agreements or contracts at issue in the matter.
These documents are typically at the core of any lost profits analyses involving alleged breaches of con-
tract and certain torts. Potential topics of which to be aware when reading agreements and contracts in-
clude the following:

 The parties to the agreement or contract

 Definitions of key terms

 Economic terms of the agreement or contract

 The term of the agreement or contract and any renewal and termination provisions

 Representations and warranties of the parties to the agreement or contract

 Indemnification provisions

 Limitations on liabilities provisions

 Integration provisions with other contracts

32 © 2020 Association of International Certified Professional Accountants