FAQ

MSG provides business valuation, forensic accounting, and economic damages analysis primarily in the context of litigation and disputes. The firm serves attorneys representing plaintiffs and defendants in complex commercial litigation, shareholder disputes and corporate dissolution proceedings, matrimonial actions involving closely held businesses, economic damages and lost profits claims, breach of fiduciary duty matters, partnership and LLC disputes, insurance claims and subrogation matters, and other cases requiring expert financial analysis and testimony.

The subject companies in these matters are typically closely held businesses where financial complexity and owner involvement make valuation and forensic analysis particularly challenging.

Every engagement begins with an initial consultation to understand the legal context, the financial issues in dispute, and the scope of work required. From there, MSG issues a tailored document request, reviews and analyzes the available financial data, and develops preliminary findings.

Throughout the engagement, the firm’s senior team members are directly involved in the analysis and in communications with counsel. This is not a firm where a senior professional signs the report while junior staff performs the work. Senior professional involvement ensures that the nuances of each matter are identified early and that the analysis reflects seasoned professional judgment.

As the engagement progresses, MSG maintains regular communication with the legal team, provides interim updates when material findings emerge, and coordinates on scheduling for depositions and trial preparation. The final deliverable is a comprehensive expert report that meets all applicable professional standards and withstands rigorous scrutiny from opposing counsel and the court.

In practice, the most effective attorney-expert relationships function as collaborative partnerships throughout the life of the case. The expert who understands the factual record in depth is better prepared for deposition and trial testimony and can adapt the analysis as new information emerges during discovery. Waiting until the expert disclosure deadline is approaching compresses the timeline, limits the available data, and often produces a less robust work product.

A business valuation is a professional analysis that estimates the economic worth of a business or ownership interest as of a specific date. The process involves examining the company’s financial statements, operations, industry conditions, and economic outlook, then applying recognized valuation methodologies to reach a defensible conclusion of value.

In litigation, business valuations are required in a wide range of contexts: shareholder disputes and corporate dissolution proceedings, matrimonial actions involving closely held businesses, estate and gift tax controversies, breach of fiduciary duty claims, partnership dissolutions, and buy-sell agreement disputes. Courts routinely rely on expert valuation testimony to resolve these matters because the value of a privately held company is not observable the way a publicly traded stock price is. A qualified valuation expert bridges that gap by applying the same analytical rigor and professional standards that govern appraisals across the profession, producing a conclusion that is designed to withstand cross-examination and assist the trier of fact.

Valuation professionals generally consider three approaches when appraising a closely held business: the income approach, the market approach, and the asset-based approach. Each reflects a different economic principle, and a competent expert will evaluate all three before determining which are most appropriate for the specific engagement.

The income approach converts anticipated future economic benefits (typically cash flow or earnings) into a present value using a capitalization rate or discount rate that reflects the risk associated with those expected returns. The market approach derives value by comparing the subject company to similar businesses that have been sold or are publicly traded, applying pricing multiples drawn from those transactions. The asset-based approach determines value by adjusting the company’s balance sheet to reflect the fair market value of its individual assets and liabilities. Depending on the facts and circumstances, a valuation expert may rely on one, two, or all three approaches. The selection and weighting of approaches, and the rationale for any approach that was considered but not applied, are critical components of a credible valuation report prepared in accordance with AICPA SSVS No. 1 and other professional standards.

These two terms sound similar but carry distinct legal and economic meanings, and applying the wrong standard can undermine a valuation’s credibility in court.

Fair market value, as defined in IRS Revenue Ruling 59-60, is the price at which property would change hands between a hypothetical willing buyer and a hypothetical willing seller, each having reasonable knowledge of the relevant facts and neither being under compulsion to act. This is the prevailing standard for federal tax matters, many buy-sell agreements, and a number of state statutes.

Fair value has multiple definitions depending on the legal context. Under many state dissenting shareholder and corporate dissolution statutes, fair value is typically interpreted as a pro rata share of the enterprise’s going-concern value, often without applying discounts for lack of marketability or minority interest. Under Generally Accepted Accounting Principles (ASC 820), fair value is defined as an exit price in an orderly transaction between market participants. A qualified valuation expert will identify which standard of value applies to your specific matter at the outset, because the choice of standard directly affects the methodology, the treatment of discounts and premiums, and the ultimate conclusion.

Reasonable compensation analysis is one of the most consequential and frequently contested components of a closely held business valuation. Owners of private companies often compensate themselves in amounts that differ significantly from what the open market would pay for comparable executive services. Some owners underpay themselves to inflate reported profits; others draw compensation well above market rates, which depresses the company’s apparent earnings.

To normalize the income stream, a valuation expert benchmarks owner compensation against market data from sources such as compensation surveys published by firms like RC Reports, industry-specific studies, and data aggregators. The analysis considers the owner’s actual duties and responsibilities, the size and complexity of the business, the industry, the geographic market, and the hours devoted to the enterprise. The difference between actual compensation and the determined reasonable amount is treated as a normalizing adjustment to the company’s earnings. Because this single adjustment can shift a valuation conclusion by hundreds of thousands of dollars or more, it is often a focal point of cross-examination and rebuttal in litigation. A well-supported reasonable compensation analysis, grounded in reliable market data and clearly documented methodology, is essential to a defensible opinion.

Discounts are adjustments that reflect the economic reality that not all ownership interests are created equal. The two most common are the discount for lack of marketability (DLOM) and the discount for lack of control (DLOC); sometimes called a minority interest discount.

A DLOM accounts for the fact that interests in closely held companies cannot be readily sold on a public exchange. Selling a private business interest typically requires more time, more cost, and more uncertainty than selling publicly traded shares. The magnitude of a DLOM is supported by empirical studies of restricted stock transactions, pre-IPO transactions, and other market evidence. A minority interest discount reflects the diminished ability of a non-controlling owner to influence business decisions such as distributions, management appointments, and the timing of a sale.

Whether these discounts apply depends on the standard of value, the legal context, and the specific characteristics of the interest being valued. In some shareholder oppression and dissolution proceedings, courts have prohibited or limited these discounts to prevent a controlling shareholder from benefiting at the expense of minority holders. A skilled valuation expert will know the applicable case law in the relevant jurisdiction, select and support the appropriate discount levels, and clearly explain the basis for each adjustment in the report and on the witness stand.

Several overlapping sets of professional standards govern the preparation and reporting of business valuations, and adherence to these standards is what separates a credible expert opinion from an unsupported estimate.

The AICPA Statement on Standards for Valuation Services No. 1 (SSVS No. 1) is the primary standard for CPAs performing business valuations. It prescribes requirements for engagement acceptance, scope of work, analysis, documentation, and reporting. The Uniform Standards of Professional Appraisal Practice (USPAP), administered by the Appraisal Foundation, applies broadly to appraisal disciplines and is required in certain federally related transactions and by some state courts. The National Association of Certified Valuators and Analysts (NACVA) maintains its own Professional Standards, which govern members holding the CVA credential. IRS Revenue Ruling 59-60, while technically guidance rather than a standard, outlines the factors the IRS considers in valuing closely held corporate stock and is cited routinely by courts and practitioners.

When retaining a valuation expert, attorneys should confirm that the expert’s work product will comply with the standards applicable to the matter. Non-compliance can provide opposing counsel with grounds to challenge or exclude the opinion.

The specific document request depends on the nature of the engagement, but most business valuation assignments begin with a core set of financial and operational records. These typically include five to six years of historical financial statements (income statements, balance sheets, and cash flow statements), federal and state tax returns for the same period, general ledgers, accounts receivable and payable aging schedules.

Beyond the financials, a valuation expert will generally request organizational documents (articles of incorporation, operating agreements, partnership agreements), a schedule of owners and their respective interests, management-prepared budgets or projections, details on compensation and benefits paid to owners and key employees, fixed asset and depreciation schedules, and information about any pending or threatened litigation. If real estate or intellectual property is involved, those asset-specific records are important as well.

Providing complete and accurate data at the outset streamlines the engagement, reduces follow-up requests, and helps the expert develop a more reliable conclusion. An experienced expert will issue a tailored document request list early in the process and identify any gaps in the available information.

The right expert can make or break a case that turns on financial issues, so the selection decision deserves serious diligence. Attorneys should evaluate prospective valuation experts across several dimensions.

Credentials matter. Designations such as ABV (Accredited in Business Valuation, issued by the AICPA), CVA (Certified Valuation Analyst, issued by NACVA), and ASA (Accredited Senior Appraiser, issued by the American Society of Appraisers) each require examination, continuing education, and adherence to professional standards. Multiple credentials signal breadth and commitment to the discipline.

Courtroom experience is equally important. An expert who has testified in depositions and at trial understands how opinions are challenged, how to communicate complex financial concepts to judges and juries, and how to maintain composure under cross-examination. Ask how many times the expert has testified, in which courts, and in what types of matters.

Engagement-level involvement is a practical concern. At some larger firms, the credentialed professional who signs the report may delegate most of the analytical work. At a boutique practice, the principal is often involved in every phase of the engagement, from the initial document review through testimony. Understand who will actually be doing the work on your matter.

Economic damages represent the monetary losses suffered by a plaintiff as a result of a defendant’s alleged wrongful conduct. In commercial litigation, these damages typically take the form of lost profits, diminution in business value, increased costs of operations, or other quantifiable financial harm that can be traced to the defendant’s actions.

Calculating economic damages requires more than simply comparing two numbers. A damages expert constructs a rigorous analytical framework that identifies the measure of loss, establishes the causal link between the defendant’s conduct and the plaintiff’s harm, defines the damages period, and applies appropriate adjustments for mitigation, discounting, and other economic factors. The analysis must meet the evidentiary standards of the applicable jurisdiction, which typically require that damages be proven to a “reasonable certainty” rather than left to speculation. Courts expect damages opinions to be grounded in reliable data, sound methodology, and transparent assumptions. An expert who can clearly articulate the logic of the damages model and defend each component under cross-examination provides meaningful support to the litigation team.

Lost profits measure the income a business would have earned but for the defendant’s breach. A damages expert will typically use one or more recognized methodologies, including the “but for method” (establishing what the plaintiff’s financial performance would have been absent the breach), the “before-and-after method” (comparing performance before and after the breach), the “yardstick method” (benchmarking against comparable businesses), and the “benefit-of-the-bargain method” (measuring what the plaintiff was promised under the contract).

Once gross lost profits are established, the expert adjusts for avoided costs (expenses the plaintiff did not incur because the contract was breached), mitigation efforts, applicable taxes, and the time value of money through present value discounting. Each assumption must be supported and documented because opposing counsel will challenge the projection at every turn. A well-constructed lost profits analysis connects the financial model directly to the factual record and the terms of the breached agreement.

Lost profits and diminution in business value are two distinct measures of economic harm, and choosing the wrong one can result in either undercompensation or an improper windfall.

Lost profits quantify the specific income stream the plaintiff was deprived of during a defined damages period. This measure is typically appropriate when the harmful conduct caused a temporary disruption to the plaintiff’s business, when the business continues to operate, or when the damages period has a natural endpoint (for example, the remaining term of a breached contract).

Diminution in business value measures the permanent reduction in the worth of the business enterprise caused by the defendant’s conduct. This measure may be more appropriate when the wrongful act caused lasting damage to the company’s reputation, customer relationships, competitive position, or earning capacity. It captures not just the immediate lost income but the ongoing impairment to future profitability.

In some cases, both measures may apply to different components of the claim. A damages expert evaluates the facts and circumstances, including the nature of the wrongful conduct, the duration of its effects, and the plaintiff’s post-breach trajectory, to determine which measure or combination of measures most accurately captures the economic harm. The selection must be defensible under the applicable legal standard and consistent with the theory of the case.

A damages calculation does not stop at the gross loss figure. Several adjustments are typically required to arrive at a fair and legally supportable damages number.

Mitigation: Most jurisdictions impose a duty on the plaintiff to take reasonable steps to minimize losses after the defendant’s wrongful act. A damages expert will assess what mitigation efforts the plaintiff undertook (or should have undertaken) and adjust the loss accordingly. Failure to account for mitigation can expose the damages figure to successful challenge.

Discounting: When damages span multiple periods or involve future losses, the expert applies present value discounting to convert those future amounts into their equivalent value as of the damages date. The discount rate should reflect the risk associated with the projected cash flows. Omitting this step overstates the damages because a dollar to be received in the future is worth less than a dollar in hand today.

Prejudgment interest: Many jurisdictions allow or require an award of prejudgment interest to compensate the plaintiff for the time between the date of loss and the date of judgment. The applicable rate, compounding method, and start date vary by jurisdiction and statute. A damages expert should address prejudgment interest in the analysis and be prepared to calculate it under alternative scenarios if the court so directs.

The earlier, the better. Attorneys who engage a damages expert at the pre-filing stage gain several strategic advantages.

First, a preliminary damages assessment helps the attorney and client perform a cost-benefit analysis of pursuing the litigation. If the provable damages are modest relative to the cost of the case, that information shapes strategy before significant resources are committed. Second, an expert who is involved early can help identify the documents and data needed to support the damages claim, which informs targeted discovery requests. Third, early engagement allows the expert to assess the strengths and weaknesses of potential damage theories before the client is locked into a specific approach in pleadings or early disclosures.

Delaying the involvement of an expert until late in discovery or trial preparation shortens their analysis time, restricts data access, and limits issue identification. Addressing financial aspects early is as important as legal strategy. An experienced damages expert who joins the team early adds value beyond just writing reports.

In most jurisdictions, a plaintiff must prove economic damages to a “reasonable certainty,” which means the damages cannot be based on speculation, conjecture, or guesswork. This does not require mathematical precision, but it does require a methodology grounded in reliable data and supportable assumptions.

A damages expert meets this standard by building the analysis on a foundation of verifiable facts: historical financial performance, contractual terms, industry benchmarks, economic data, and testimony from individuals with knowledge of the business. Each assumption in the model should be explicitly stated, logically connected to the evidence, and tested through sensitivity analysis. Where uncertainty exists, the expert should acknowledge it and, where possible, present a range of outcomes that brackets the most likely result.

Courts have excluded damages opinions that rely on speculative projections, ignore available data, or fail to account for factors unrelated to the defendant’s conduct. The reasonable certainty standard is ultimately a test of analytical discipline. An expert who documents the work thoroughly, shows the connection between facts and conclusions, and can explain the methodology in plain language positions the opinion to survive challenge and assist the trier of fact in reaching a just result.

Forensic accounting is the application of investigative and analytical accounting skills to resolve financial disputes, detect irregularities, and support litigation. While a traditional audit is designed to provide reasonable assurance that financial statements are free from material misstatement, forensic accounting is purpose-built to look behind the numbers, identify anomalies, and trace the flow of funds.

The distinction is one of objective and mindset. An auditor evaluates whether financial statements comply with Generally Accepted Accounting Principles through sampling and testing procedures. A forensic accountant, by contrast, starts with a specific hypothesis (for example, that income has been understated, assets have been diverted, or expenses have been fabricated) and conducts a targeted investigation designed to confirm or refute that hypothesis. The forensic investigation may involve reconstructing financial records from incomplete data, analyzing transactional patterns for irregularities, tracing funds through multiple entities and accounts, and interviewing individuals with knowledge of the financial activity. The work product is typically a report and, where appropriate, expert testimony that explains the findings in terms the court can understand and evaluate.

Forensic accountants add value in any dispute where the financial record is incomplete, contested, or potentially manipulated. Common litigation contexts include matrimonial and divorce proceedings where one spouse may be concealing income or assets, shareholder disputes involving allegations that a controlling owner diverted corporate funds or engaged in self-dealing, breach of fiduciary duty claims requiring analysis of financial transactions and their propriety, fraud investigations (including employee embezzlement, insurance fraud, and financial statement fraud), partnership dissolutions where the parties disagree about the financial condition of the business, and commercial disputes where accounting records form the evidentiary foundation.

In many instances, forensic accounting, valuation, and damages assessments are jointly required to inform the financial conclusions. For example, uncovering unreported revenue in a family business affects both the valuation of the enterprise in a matrimonial action and the determination of a spouse’s true income for support purposes. An experienced forensic accountant identifies these connections and ensures the financial analysis is built on a reliable factual foundation.

Forensic accountants employ a range of investigative techniques that go well beyond reviewing the face of the financial statements. The specific approach depends on the nature of the suspected irregularity.

To detect hidden income, a forensic accountant may perform a cash flow analysis, comparing reported income against known expenditures and lifestyle. If the individual or business is spending more than reported income would support, the gap suggests unreported funds. Bank deposit analyses, which aggregate all deposits to known accounts and reconcile them against reported revenue, can identify discrepancies. Source-and-use-of-funds analyses and net worth analyses over multiple years can reveal patterns of accumulation inconsistent with reported earnings.

To identify concealed assets, the investigation may involve tracing transfers between related entities, analyzing real property records, reviewing brokerage and retirement account statements, and examining transactions with family members or affiliated businesses. For manipulated financial records, the forensic accountant looks for journal entry anomalies, unusual timing of transactions around period-end, round-dollar entries lacking supporting documentation, and departures from the company’s established accounting practices. The goal is to follow the money wherever it leads and reconstruct an accurate financial picture that the court can rely upon.

Yes, and experienced forensic accountants frequently do. A forensic accountant who holds credentials such as the CFF (Certified in Financial Forensics) or CPA license is routinely qualified by courts to render expert opinions on matters involving financial investigation, fraud detection, tracing of funds, and related accounting issues.

Expert witness testimony from a forensic accountant typically covers the procedures performed, the data examined, the anomalies or irregularities identified, and the conclusions drawn from the investigation. The testimony must meet the standards for expert evidence in the applicable jurisdiction. Under the federal system (Daubert v. Merrell Dow Pharmaceuticals), the court evaluates whether the expert’s methodology is reliable and relevant. Under the New York state standard (Frye), the court assesses whether the methods are generally accepted in the relevant scientific or professional community.

What makes forensic testimony particularly effective is the ability to translate complex financial transactions into clear, logical narratives that judges and juries can follow. An expert who can walk the trier of fact through a trail of transactions, explain why specific entries are irregular, and connect the financial evidence to the legal claims provides powerful support for the attorney’s case.

The qualities that make a forensic accountant effective in litigation extend beyond technical competence, though technical competence is the baseline.

First, look for relevant credentials. The CPA license demonstrates foundational accounting expertise. Specialized designations like the CFF (Certified in Financial Forensics, issued by the AICPA), and CFE (Certified Fraud Examiner) indicate additional training and examination in the investigative and valuation disciplines. An expert with multiple credentials can address interconnected issues without the need for separate engagements.

Second, courtroom experience matters significantly. A forensic accountant who has testified in depositions and at trial understands how to present complex findings clearly, anticipate opposing counsel’s challenges, and maintain credibility under cross-examination. Ask about prior testimony experience, the types of matters handled, and the jurisdictions in which the expert has appeared.

Third, consider the engagement model. Will the credentialed expert be personally involved in the investigation, or will the work be delegated to junior staff with limited oversight? In matters where the stakes are high and the issues are nuanced, direct involvement of the senior professional from the outset produces better results and stronger testimony.