October 21, 2011
The Need for Accounting Knowledge in Law Practice
Those of us who teach or practice business law understand the value of having at least some knowledge of accounting principles. But some of my students are skeptical about the need to understand accounting, particularly if they don’t intend to practice in the areas where accounting is obviously important—tax, corporate, and securities law.
I’m putting together a list of other practice areas where at least some basic knowledge of accounting would be beneficial. Here are some examples:
- Law practice: Running a law firm or supervising the administrators who do
- Law practice: Responding to audit inquiry letters
- Family law: Child support and alimony determinations
- Criminal law: Prosecuting or defending white collar crime
- Employment law: Dealing with the compensation of employees, particularly executives
- Labor law: Negotiating union contracts (Any NFL or NBA fan knows what I'm talking about.)
- Administrative law: Rate approvals for regulated industries.
I would appreciate any suggestions you might have for additions to the list. Again, I’m looking for examples in areas other than tax, securities, and corporate law.
October 21, 2011 | Permalink
Speaking from an accounting perspective, I heartily agree. Your list is a really good start. Add health care law with a big exclamation mark.
Good attorneys of any specialty are good because they can absorb and synthesize lots of complex information and learn on the job.
Quick stories: doing a deposition with an attorney who through "revenue" and "income" were the same thing.
And then there was the attorney in depo who insisted I invented "opportunity costs" to con him. The depo was continued so I showed up with a stack of accounting and economics books properly bookmarked. Score one for the accountant.
Posted by: save_the_rustbelt | Oct 23, 2011 7:15:32 AM
Steve, the family law category could be expanded to include divsion of the marital estate, since often a big chunk of the estate is a family business. Other areas to include: general tort practice -- you often need to know accounting if you have to assess the defandant's abilty to support a judgment (i.e. to determine whether it's worth suing someone with no resources). Real estate law, as commercial leases often key into percentage of sales. Obviously, any law practice involving financial industries such as banking and insurance. In secured transactions there are often financial covenants in the security agreement. I'm sure there are many more.
Posted by: Eric Gouvin | Oct 24, 2011 6:33:22 AM
Posted by: Bah Bah | Oct 24, 2011 10:42:53 AM
Steve, what practice area doesn't it help with? I agree with Eric above, the first thing to pop into my mind was tort law. I teach undergraduate Business Law courses quite often to business majors, and when we get to the section on tort we often go through some basic accounting principles first to pre-introduce the subject. It helps enormously when they wrestle with (for example) concepts of proportional liability , or we discuss structured settlements and they need to understand time value of money and present value.
Similarly, insurance law, or municipal law practice, where the bulk of the work an insurance or municipal attorney might do will be assisted by a rudimentary understanding of basic accounting principles. In intellectual property practice, accounting knowledge will help when you need to value a license right, or calculate the value of a stream of royalty payments.
I'd add basic principles of economics to your wish list for student knowledge too.
Posted by: John McArdle | Oct 25, 2011 7:23:31 PM
Thanks to everyone who has commented so far.
John: I agree with you about economics, but it's taught in a different course. (I used to teach that as well.) I also think simple finance is helpful, and some of that is included in my accounting course.
Posted by: Steve Bradford | Oct 26, 2011 9:08:07 AM