North Carolina Business Litigation Report

Accountant Who Prepared Financial Statements Didn't Need To Be Designated As An Expert Witness In Order To Testify

An accountant who had prepared financial statements did not need to be designated as an expert witness in order to provide testimony regarding those financial statements, per the Business Court's ruling in A-1 Pavement Marking, LLC v. APMI Corporation, 2009 NCBC 15 (N.C. Super. Ct. June 26, 2009).  The opinion also discusses generally accepted accounting principles ("GAAP") relevant to financial statements of consolidated entities.

The issue in A-1 was Plaintiff's calculation of a bonus due one of the Defendants, which was to be based on Plaintiff's gross profits. The Plaintiff's consolidated financial statements had eliminated a significant receivable due from a subsidiary. The Defendant asserted that his bonus would have been substantially higher with the inclusion of that receivable in the gross profit calculation, and brought a claim under the North Carolina Wage and Hour Act.

The Plaintiff moved for summary judgment, relying on an affidavit from the accountant who had prepared the financial statements on which the calculation was based.  The Defendant objected to what it termed "improper opinion testimony," and argued that the accountant had never been designated as an expert witness.

Judge Diaz rejected the argument that the accountant was an undisclosed expert who shouldn't be allowed to testify, holding:  

The record shows that Plaintiff’s accountant personally prepared the relevant financial statements and arrived at the $5,000.00 bonus amount that A-1 paid Blount. As a result, Plaintiff’s accountant is not an expert witness, but is instead a fact witness, albeit one with specialized knowledge in accounting. Cf. Turner v. Duke University, 325 N.C. 152, 168, 381 S.E.2d 706, 716 (1989) (“Where a doctor is or was the [patient’s] treating physician and is called to testify not about the standard of the [patient’s] care but rather about the [patient’s] treatment and the doctor’s choice of surgical procedures, he is not an expert witness.”).

The Court furthermore didn't accept the argument that the consolidated financial statements had improperly excluded the intercompany receivable:

the accounting methodology used by Plaintiff's accountant to generate the consolidated financial statements . . . is entirely consistent with GAAP.  When a parent company prepares consolidated financial statements, GAAP requires the parent to eliminate certain transactions among the parent and its affiliates, including accounts receivable, to avoid counting revenue twice and to accurately portray the operating results of affiliated companies as a single economic unit. 

Plaintiff's motion for summary judgment was granted. 

There have been two other opinions from the Business Court in the A-1 case, one involving a claim for reformation of the asset purchase agreement at issue in the case; and the other denying a request for a preliminary injunction involving title to a motor vehicle.

Brief in Support of Motion for Partial Summary Judgment

Brief in Opposition to Motion for Partial Summary Judgment

Reply Brief in Support of Motion for Partial Summary Judgment

The photo at the top is from roboppy's photostream on Flickr.

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Mack Sperling
Brooks Pierce, LLP
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