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ARTICLE · 11 JANUARY 2004

The Use Of Financial Modelling In Expert Evidence

Clayton Utz
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Caution needs to be exercised when experts employ "modelling" techniques in reports which are prepared for the purpose of establishing quantum of economic loss. The validity of the assumptions used by the expert in the model will need to be proved, either through the expert providing the report, or another expert or lay witness.

AustraliaLitigation, Mediation & Arbitration
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Article by Sid Wang and Jacqueline Deane

Key Points:

  • Caution needs to be exercised when experts employ "modelling" techniques in reports which are prepared for the purpose of establishing quantum of economic loss.
    • The validity of the assumptions used by the expert in the model will need to be proved, either through the expert providing the report, or another expert or lay witness.

    Recently, a Federal Court Judge in South Australia was quite critical of the use of financial modelling by an expert in a report provided to the Court to assess the amount of loss of profits.

    Financial modelling is a technique employed by forensic accountants which involves the construction of a model based on historical data to simulate and forecast the future. When used to calculate the quantum of damages in litigation the forensic accountant compares the actual profitability of the plaintiff that resulted after, and which was caused by, the violation of its rights, with the hypothetical

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