Accountants and Arbitration

Source: The CPA Journal

CPAs may have an interest in alternative dispute resolution practices as they affect their businesses or those of their clients, or in connection with possible roles as arbitrators.

Arbitration is flexible, efficient, private, and quick.

Arbitration permits parties to control the range of damages, qualifications of the arbitrators, and some of the processes. It tends to limit time-wasting and unnecessary discovery. Proceedings are confidential. And in cases in which mediation is used, business relationships may continue.

A major advantage is being able to select an arbitrator with experience relevant to the case. This often means quickly getting to the essential elements of the dispute.

If parties cannot agree on selection of an arbitrator, they may decide to use the American Arbitration Association’s (AAA) Commercial Arbitration Rules and Mediation Procedures (www.adr.org). The first step is providing qualifications they are looking for (e.g., someone with experience in business valuations). The AAA may select an arbitrator based on those submissions. Alternatively, each party may appoint an arbitrator and the two arbitrators select a chairperson. This allows each party to have an advocate, though the need for an advocate is questionable since each party is represented by an attorney.

The AAA adopted a new set of ethical guidelines for arbitrators in March 2004. These include:

• All arbitrators, including those appointed by the parties, are presumed to be neutral. Previously, arbitrators appointed by the parties were presumed to be non-neutral.
• Arbitrators appointed by the parties must disclose whether they will be acting as neutrals or non-neutrals.
• All arbitrators must disclose any pertinent interests and relationships.
• All arbitrators must determine whether they are competent to serve in the case.

From The CPA Journal, December 2005. For the complete article, click on the following link: http://www.nysscpa.org/cpajournal/2005/1205/essentials/p60.htm.