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  • Writer's pictureZSS CPAs

Insights into the Arbitration Process

Although most arbitrators are lawyers or retired judges, increasing numbers of CPAs are serving as arbitrators to expand the services they provide. The CPA’s reputation for objectivity, knowledge, skills, and consulting experience collectively make arbitration a good fit for many accountants.

What Is Arbitration?

Although most attorneys are familiar with arbitration, not all are aware of the advantages it can offer disputants as a quicker and less expensive alternative to litigation. The parties who are in dispute often appreciate arbitration because it’s less formal than courtroom proceedings and usually takes place in an office or boardroom. Additionally, arbitration offers the parties a greater say in who hears the case.

Perhaps most important, arbitration is private. Results of the arbitration are not published, which will offer some parties a big benefit.

Establish the CPA's Role in Arbitration

During the arbitration of a case that has a complex monetary component, CPAs perform four basic roles:

•Expert: An expert is someone who presents expert testimony on accounting issues. CPAs are experts in taxation, financial accounting, and a wide variety of other business and personal finance issues.

•Special master: A special master is a neutral party who helps the arbitrator understand significant accounting evidence and issues.

•Consultants: Consultants help attorneys draft arbitration clauses so that they use the correct accounting terminology.

•Sole arbitrator or a member of a panel of arbitrators: CPAs can work independently or as a member of a panel.

Clarify Expectations

To ensure that all parties involved understand expectations, always address the following before beginning work:

Engagement Letter: To get started, you should give a CPA an engagement letter that outlines the nature of the job and states how the CPA will get paid. This letter also should address immunity.

Payment: Typically, parties split the arbitrator’s fee. Things can get dicey, however, if one party feels cheated by the arbitrator’s decision. Then, an arbitrator may have to sue to collect fees. If CPAs are arbitrating among large, established parties, like big corporations, they may decide to bill the client at the end of the process. But if they are working with smaller, unknown parties, they may ask for a retainer before beginning work. Also, an arbitrator may ask for payment before releasing a decision.

Scheduling: After you and the CPA have both signed the engagement letter, work on a scheduling agreement that summarizes what the arbitrator is expected to do, noting that the decision is final and binding, and granting the arbiter immunity for the engagement.

Learn More

If you want to learn more about how a CPA can facilitate the arbitration process, give us a call. We are happy to discuss the many ways a CPA can help you

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