What is accounting malpractice?
Accounting malpractice is the failure of an accountant or auditing firm to exercise due care in performing their duties. This can include improperly preparing financial statements, not abiding by generally accepted accounting principles (GAAP) standards, misstating a client’s assets or liabilities on a financial statement, failing to detect fraud, and other related issues. Clients who sustain losses due to accounting malpractice may be eligible for legal action and awarded damages.
Examples of accounting malpractice include:
- Improper tax reports resulting in increased tax liability
- Errors in financial statements resulting in reduced assets or increased liabilities
- Intentional or careless investment advice
- Failure to detect embezzlement during an audit
- Embezzlement, overbilling etc
Conflict of interest
A conflict of interest for a CPA is when there is competition between their professional and personal interests. For example, it could be an interest in a client which has the potential to influence one’s judgment. Conflict of interest can also arise when CPAs have a direct or indirect financial interest in any business transaction with a client or if they receive personal benefits from providing services to their clients. CPAs must disclose potential conflicts of interest to the client and resolve them accordingly. Failure to disclose a conflict of interest is considered malpractice.
Elements of a successful accounting malpractice claim
For a successful accounting malpractice claim, you must prove that the CPA owed you a duty of reasonable care. Of course, this duty is based on the accountants’ code of ethics, which states that they must show professional competence and exercise due care. Accounting malpractice must also demonstrate a breach of fiduciary duty, such as failure to follow Generally Accepted Accounting Principles, federal laws, etc.
You must be prepared to show that the CPA failed to provide services at a level a typical accounting professional would offer under similar circumstances. An expert witness can help you demonstrate that a breach of fiduciary occurred.
You must also be prepared to prove that harm occurred due to the CPA’s malpractice. Otherwise, you don’t have a case. Additionally, be ready to demonstrate that there is a clear link between the CPA’s actions and the stated damages.
In some circumstances, you may be able to file a lawsuit against a CPA even if they didn’t work for you directly. For example, if you suffer a loss on a business transaction based on a third-party CPAs incorrect financial data, you can file a negligent representation claim.
Compensation from accounting malpractice lawsuits
Successful accounting malpractice lawsuits lead to the recovery of damages caused by the CPA’s breach of duty. Usually, the final compensation depends on the particular circumstances of a case.
For example, suppose you successfully sue an account for compensation due to tax errors. In that case, you can recover the overpaid taxes, legal fees, expenses incurred fighting the IRS investigation, etc. Additionally, if the accounting error caused you to miss an income tax refund, you may be able to ask for further compensation.
How accounting malpractice attorneys can assist
Accounting malpractice attorneys can assist in legal restitution by representing their clients in court and bringing legal action to hold the accountant or auditing firm responsible for any losses due to negligence. They can also help recover financial damages resulting from accounting malpractice and other economic losses such as lost wages, lost profits, and other costs associated with the case. Furthermore, they can negotiate settlements outside of court and resolve disputes between parties without litigation.
Accounting malpractice lawyers will review your case and examine various financial statements and contracts to determine the extent of damages you can claim in your suit.
Litigation and damage recovery
If you decide to file a lawsuit, accounting malpractice attorneys can help you prepare the documents and file the case correctly and on time. They will also help collect evidence and prepare expert witnesses. Finally, they present your case, cross-examine witnesses and argue the facts to ensure the judge or jury understands your position.