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Reasonable certainty in economic damage calculations insight series

Most courts require that economic damage analyses, such as lost profits, be proven with reasonable certainty.  While no hard and fast definition exists regarding what constitutes reasonable certainty, as a general proposition, the opinion of the Federal Court of Claims in Franconia Associates v. United States articulates what many courts have determined, namely, that "reasonably certain" damages analyses need not prove that the elements of the damages analyses are certain, but rather that the analyses are anchored in facts, use sound methodologies, and yield reasonable results.  The concept articulated in Franconia Associates mirrors the requirements set out in the Federal Rules of Evidence, particularly Rule 702, the Daubert and Kumho Tire cases, and comparable state level tests regarding the admissibility of expert opinions. 

Recognizing the importance of reasonable certainty in damage analyses, the American Institute of Certified Public Accountants’ (AICPA) Economic Damages Task Force undertook an evaluation of where the courts have ruled on the issue of reasonable certainty in order to assess where and how the courts have addressed the issue.  The Task Force, including Baker Tilly partner David Duffus as a principal author, presented the overall evaluations in the Attaining Reasonable Certainty in Economic Damages Calculations [Subscription required.] practice aid published in July 2015.  The evaluation focused on three key areas: the use of client supplied data, the damages expert’s role in evaluating causation, and damages for newly established businesses. Read the summaries below: 

  1. Reliability of client-supplied data
  2. The role of the damages expert in evaluating causation
  3. Damages for newly established businesses

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

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