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Calculating Lost Profits – Business Valuation and Forensic & Litigation Services Practice Aid 06-4

Publisher: AICPA
Availability: Online Access
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Description

Authored by recognized specialists, this Practice Aid discusses roles the CPA may be asked to take in a lost profits damage analysis, the professional standards applicable to those services, and the basic principles and guidelines for preparing lost profit damages analyses. As each engagement is unique, these principles and guidelines must be evaluated and adapted to the facts and circumstances that affect the engagement.

What the Calculating Lost Profits Practice Aid offers you:

  • Basic principles and guidelines for preparing a lost profits damage analyses including the applicable professional standards
  • A discussion of the roles the practitioner may be asked to take in a lost profits damage analysis
  • Valuable information regarding alternative measures to calculating lost profits and specialized damage areas including newly established businesses, intellectual property, antitrust and securities fraud
  • An overview of case law, evidentiary standards, legal principles of proving damages, estimating revenues and costs, financial discounting to present value and more

The Appendixes also include a list of pertinent cases and lost profit calculation resources that will be very helpful to the practitioner.

Note: This product is an electronic download file that will be accessible immediately after completing your purchase. Access to this file – from the My Download page – expires 90 days from purchase date.

Please note this product purchase is non-refundable. For more information about this product or service concerns, please contact the AICPA Service Center at service@aicpa.org or call 888-777-7077.

This publication has not been updated for pronouncements issued since the date of this publication in 2006.

FVS Section Members Save! FVS section members can access the download at no charge by clicking here http://fvs.aicpa.org/Resources/Practice+Aids+and+Special+Reports/.

Should you have any questions or encounter any issues, please contact the AICPA Service Center at 888-777-7077 or service@aicpa.org.

Find out more information on the Forensic and Valuation Services Member Section.

Table of Contents

  • Chapter 1 - Introduction
    • Limitations of This Practice Aid
    • Scope of This Practice Aid
  • Chapter 2 - Overview of the Lost Profits Analysis
  • Chapter 3 - Overview of Applicable Professional Standards
    • The AICPA Code of Professional Conduct
    • The Consulting Standards
    • Other Guidance
  • Chapter 4 - Overview of Case Law and Evidentiary Standards
    • State Law
    • Federal Law
  • Chapter 5 - Role Of the Practitioner in Lost Profits Analysis
    • Practitioner as Expert
    • Practitioner as Consultant
    • Practitioner in Other Roles
  • Chapter 6 - Qualifications and Skills
    • Training and Experience
    • Other Skills
    • Use of Other Experts
  • Chapter 7 - Lost Profits Claims
    • Damages and Damage Types
    • Contract Disputes
    • Tort
  • Chapter 8 - Legal Principles of Proving Damages
    • Causation
    • Foreseeability (Contract Damages Only)
    • Certainty
  • Chapter 9 - Loss Period
    • Breach of Contract
    • Torts
  • Chapter 10 - Calculating Lost Revenues
    • The "Before and After" Method
    • The "Yardstick" (or "Benchmark") Method
    • Calculation Based on the Terms of the Contract
    • An Accounting of Defendant's Profits
    • Other
    • Past and Future Lost Revenues
    • Do the Calculated Lost Revenues Make Sense?
  • Chapter 11 - Cost Estimation
    • Concept of Avoided Costs
    • Analysis of the Plaintiff's Cost Structure
    • Fixed Versus Variable Costs
    • Nonstatistical Methods of Cost Estimation
    • Statistical Methods of Cost Estimation
    • Do the Calculated Avoided Costs Make Sense?
  • Chapter 12 - Prejudgment Interest on Past Losses
  • Chapter 13 - Financial Discounting of Future Lost Profits to Present Value
    • The Time Value of Money
    • Ex Post Methodology Versus Ex Ante Methodology
    • Methods of Determining Discount Rate
    • Mid-Year Versus End-of-Year Discounting
    • Adjusting for Risk in Projected Profits Versus Accounting for Risk in the Discount Rate
  • Chapter 14 - Taxes and Damages
  • Chapter 15 - Mitigation of Damages
  • Chapter 16 - Other Issues Affecting Lost Profits Analyses
    • Distinguishing Between Violative and Nonviolative Acts
    • Distinguishing Various Violative Acts
    • Impact of Subsequent Events
    • Changes in the Economic Environment
  • Chapter 17 - Alternative Damage Measures Other Than Lost Profits
    • Out-of-Pocket Costs
    • Decrease in Value Caused by the Defendant's Misconduct
  • Chapter 18 - Specialized Damages Areas
    • Newly Established Businesses
    • Intellectual Property Infringement Damages
    • Antitrust Violation Damages
    • Securities Fraud Damages
    • E-Business Impact on Damages
  • Appendix A - Comparison of AICPA Professional Standards and Federal Rule of Evidence 702
  • Appendix B - Testimony Pyramid
  • Appendix C - Typical Litigation Services
  • Appendix D - Ex Ante Versus Ex Post
  • Appendix E - List of Cases Cited
  • Appendix F - Lost Profits Resources (Nonexhaustive List)

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Excerpts

Chapter 1 - Introduction

Limitations of this Practice Aid
1.    The purpose of this Practice Aid is to provide nonauthoritative guidance to practitioners engaged to prepare an analysis of lost profits. Often, these services are in a litigated environment. Although this publication discusses legal concepts and requirements, it is not intended to provide legal advice. Practitioners are advised to discuss legal concepts and requirements with counsel.

Scope of this Practice Aid
2.    This Practice Aid discusses roles the practitioner may be asked to take in a lost profits damage analysis, the professional standards applicable to those services, and the basic principles and guidelines for preparing lost profit damages analyses. As each engagement is unique, these principles and guidelines must be evaluated and adapted to the facts and circumstances that affect the engagement.

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