The Use of AI in Preparing Forensic Accounting Expert Reports: Australian Court Rules, Leave Requirements, and Jurisdictional Divergence
Key Takeaways for Instructing Counsel & Experts:
- NSW Prohibitive Model: Practice Note SC Gen 23 explicitly bans using Generative AI to draft any part of an expert report without prior leave of the Court.
- Federal & Victorian Verification Models: The Federal Court (GPN-AI) and Supreme Court of Victoria (SC GEN 25) permit AI assistance with strict human verification, mandatory disclosure capabilities, and full prohibition of unvetted LLM checking.
- Confidentiality & The Harman Undertaking: Inputting privileged bank statements, discovery material, or trade secrets into public AI systems creates immediate risks of privilege waiver and contempt of court.
- APES 215 & S 79 Evidence Act: Expert opinion must stem from the expert's specialized human training; relying on opaque machine algorithms without verifiable reasoning can render an accounting report inadmissible.
The rapid adoption of Large Language Models (LLMs) and Generative Artificial Intelligence (Gen AI) has introduced unprecedented processing power to financial investigations. Forensic accountants can now synthesize thousands of transaction rows, extract figures from unstructured invoices, and automate chronological indexing in seconds.
However, when an investigative analysis transforms into a formal expert witness report destined for court, the regulatory landscape shifts dramatically. In Australia, the legal standards governing expert evidence—including Section 79 of the Uniform Evidence Law, the expert's overriding duty to the court, and Accounting Professional & Ethical Standard APES 215—demand complete intellectual transparency, reproducible reasoning, and strict confidentiality.
Crucially, how AI may be used in expert evidence is not uniform across Australia. Australian courts have diverged into two distinct philosophies: a strict pre-approval/leave model in New South Wales versus a verification and mandatory disclosure model in Victoria and the Federal Court.
1. The Australian Jurisdictional Landscape: State-by-State Rules
New South Wales: The Prescriptive "Leave Required" Model (SC Gen 23)
The Supreme Court of New South Wales established Australia's most restrictive regime under Practice Note SC Gen 23 (Use of Generative Artificial Intelligence). This regime applies across the NSW Supreme Court, District Court, Local Court, Land and Environment Court, and NCAT:
- General Prohibition (Paragraph 20): Gen AI must not be used to draft or prepare the content of an expert report (or any part of an expert report) without prior leave of the Court.
- Witness Statements & Affidavits: Gen AI cannot be used to alter, embellish, or rephrase witness evidence; affidavits must include a positive disclosure certifying that Gen AI was not used to generate content.
- Annexures & Exhibits (Paragraph 15): In exceptional cases, leave may be sought to use Gen AI for preparing annexures or exhibits, provided specific technical safeguards and clear administrative benefits are proven.
Federal Court of Australia: Practice Note GPN-AI
The Federal Court issued Practice Note GPN-AI (Use of Generative Artificial Intelligence). Rather than requiring advance leave for every task, the Federal Court emphasizes active disclosure, verification, and ethical adherence:
- Direct Reach to Experts: Experts must comply with GPN-AI when preparing reports. Engaging legal practitioners must provide the practice note to the expert and secure their confirmation that they have read and understood it.
- Disclosure on Request: Experts must be prepared to inform the court what AI tool was used, how it was used, and for what purpose.
- Duty to Verify: No AI tool may be used to verify another AI tool; a human professional must verify every calculation, citation, and factual proposition against primary records.
Victoria: Practice Note SC GEN 25
The Supreme Court of Victoria, the County Court, and VCAT operate under Practice Note SC GEN 25 (The Use of Artificial Intelligence by Court Users):
- Meaningful Human Control: All content produced with AI assistance must be verified with active human control. Court users must adapt and fact-check all output.
- Audit Trail Requirements: Experts must remain prepared to identify the specific sections of court documents that were generated or assisted by AI and explain how the verification was conducted.
- Distinction Between Public and Closed AI: Recognizes the security risks of public LLMs and requires practitioners to safeguard confidential data within controlled enterprise environments.
Queensland, Other States & Federal Circuit and Family Court (FCFCOA)
In Queensland, Western Australia, South Australia, and the FCFCOA (under Practice Direction PD-AI), courts have issued practitioner directives focusing on professional conduct, full disclosure of AI drafting tools, and the overriding principle that Generative AI cannot substitute for professional human judgment.
2. Seeking Leave of the Court: What Is Required?
Where court rules mandate prior approval before AI can assist with expert evidence (such as NSW SC Gen 23, paragraph 21), instructing solicitors and forensic accountants must make a formal application identifying:
- The Precise Proposed Scope: Exactly which analytical or administrative tasks will involve AI (e.g., optical character recognition of paper ledgers vs. statistical regression modeling).
- Software Specification: The exact software program, platform name, version number, and base algorithm deployment.
- Closed-Source vs. Open-Source Environment: Confirmation that the tool operates within a private, enterprise closed environment with enterprise security, where inputs are not stored, retained, or utilized to train external public models.
- Demonstrable Benefit: Explaining the specific benefit to the administration of justice—such as reducing trial costs or analyzing an unwieldy dataset of 200,000 transaction lines that would otherwise be cost-prohibitive.
- Verification & Human Oversight Protocols: A detailed roadmap explaining how the forensic accountant will independently test the outputs against raw banking records to guarantee zero hallucination.
3. Permitted vs. Prohibited Uses in Forensic Accounting
Court practice notes and standards set by the Accounting Professional & Ethical Standards Board (APESB) establish clear demarcations between acceptable administrative acceleration and impermissible delegation of expert opinion:
| Category | Permitted Applications (With Oversight) | Strictly Prohibited / Inappropriate |
|---|---|---|
| Report Drafting | Drafting non-contentious administrative chronologies, document indices, and file metadata compilations. | Drafting the expert's opinions, deductive reasoning, conclusions, or substantive commentary. |
| Data Ingestion & Schedules | Ingesting unstructured PDF bank statements via OCR into standardized CSV ledgers (subject to sample reconciliations). | Delegating complex solvency analyses, DCF discount rates, or valuation multiples to automated algorithm outputs. |
| Annexures & Work Papers | Formatting calculation workbooks, hyperlinking exhibits, and producing visual charts backed by raw spreadsheets. | Submitting automated AI-generated graphics or summary schedules without underlying audit trails. |
| Source Verification | Human audit of 100% of generated numbers against certified bank transcripts and general ledgers. | Using a secondary AI tool to "check" or "validate" outputs from a primary AI tool. |
4. Confidentiality, Privilege, and the Harman Undertaking
For forensic accountants, confidentiality is an absolute professional imperative under APES 110 (Code of Ethics for Professional Accountants) and standard litigation rules. In litigation, this is reinforced by the strict common law Harman undertaking (and Federal Court Rule 20.03): documents obtained under court discovery or subpoena cannot be utilized for any purpose outside the proceedings.
Entering confidential, unredacted client financial statements, business tax returns, or subpoenaed bank ledgers into a public AI tool (such as free tiers of general web chatbots) constitutes a severe breach:
- Training Leakage: Public models may absorb inputs into external data sets, exposing sensitive commercial data or privileged client communications to third parties.
- Waiver of Privilege: Transmitting confidential legal instructions or draft witness evidence to an uncontrolled external cloud platform may defeat legal professional privilege.
- Contempt of Court: Breaching implied discovery undertakings by sharing subpoenaed materials with an unapproved AI provider exposes both the expert and instructing counsel to serious judicial sanctions.
5. Best-Practice Disclosure & Report Certification
To eliminate evidentiary challenges under Section 79 of the Evidence Act and comply with APES 215, forensic accountants who utilize AI-assisted processing tools should adopt a "Disclose by Default" protocol.
Standard Disclosure Clause for Expert Reports:
"In preparing the transaction schedules annexed at Schedule C, an enterprise closed-environment optical character recognition tool (Platform X, Version Y) was used strictly to extract tabular banking numbers from paper records into structured electronic formats. No generative artificial intelligence was utilized to formulate, draft, or influence the opinions, conclusions, or deductive reasoning set out in this report. All extracted transactional data has been 100% manually reconciled by the author against the original primary banking transcripts."
Additionally, expert work papers must preserve a complete audit trail: the exact software versions, parameter configurations, prompts entered, and initial outputs must be permanently filed in the working files, available for immediate production should the court direct disclosure.
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