4Ed_CCH_Forensic_and_Investigative_Accounting_Solutions_11

4Ed_CCH_Forensic_and_Investigative_Accounting_Solutions_11...

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© 2009 CCH. All Rights Reserved. Chapter 11 133 Chapter 11 Litigation Support in Special Situations CHAPTER SUMMARY Overview This chapter discusses the litigation support that accountants can provide in two important types of business disputes: antitrust litigation and Federal False Claims Act litigation. Both types of disputes typically require signi f cant input from accountants and involve many different accounting issues. Antitrust Litigation ¶11,001 Overview of Antitrust Laws Antitrust laws are an outgrowth of the early years of the Industrial Age in the United States when a small number of powerful businessmen used any tactic at their disposal to force competitors out of business. Once the competition was eliminated, the surviving business became a monopoly. Because such business practices were not in the best interest of the country, federal legislation was passed that prohibits the formation and continuation of monopolies except when in the best interest of the public. Monopolies have not ceased despite widespread deregulation in formerly monopolistic industries. An individual or another company may f le a lawsuit under the antitrust laws. ¶11,011 Role of Accountants in Antitrust Litigation In antitrust cases, accountants may be called upon to determine whether there is liability under the antitrust laws. The primary issue that forensic accountants address is whether the defendant has engaged in predatory pricing. Accountants are uniquely skilled to provide insight into whether predatory pricing has occurred. Accountants also may be asked to calculate the damages a party has sustained as a result of a violation of the antitrust laws. ¶11,021 Actions That Constitute Predatory Pricing Predatory pricing is the act of pricing a product so low that the only logical explanation is that the pricing is designed to drive competitors out of business. The de f nition does not give a judge or jury much guidance in determining whether predatory pricing has occurred. Because of that, the courts have used a simpler de f nition to apply the concept of predatory pricing in actual situations. The operational de f nition is whether a company prices its products or services below ‘‘average variable cost’’; if so, predatory pricing is present. ¶11,031 Determining a Company’s Average Variable Costs Knowing what types of cost behavior patterns are common in business is not enough to allow an expert or analyst to merely look at a company’s ledger accounts and identify which costs are f xed, variable, or mixed. Most organizations have few costs that are captured, recorded, and reported by their cost behavior pattern. Instead, costs typically are identi f ed and recorded by their functional characteristics, such as product cost and period cost. Without more information about individual costs, it is necessary to determine the cost behavior pattern of each cost. ¶11,041
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