Accounting Malpractice: What You Need to Know
Created by FindLaw's team of legal writers and editors | Last reviewed January 18, 2017
Handling your own accounting can be an enormous source of stress. What if you were to make a mistake and find yourself overpaying on taxes or accused of wrongdoing? An accountant is meant to take the responsibility for tending to your affairs properly, allowing you to relax and direct your attention elsewhere, but accountant malpractice can land you in just the sort of quagmire you were hoping to avoid. The following article discusses accounting malpractice and what to do when your accountant fails to properly manage your accounts.
GAAS and GAAP
Accountants are bound to abide by Generally Accepted Auditing Standards (GAAS) and Generally Accepted Accounting Principles (GAAP). Their application depends on the accountant's activities on your behalf.
- GAAS -- Standards that apply when an accountant is providing a transparent and unbiased auditing of your accounts.
- GAAP -- Principles that apply when an accountant is preparing financial statements on your behalf.
Many forms of accountant malpractice occur when an accountant deviates from the standards set by these two systems.
Breach of Contract and Negligence
This departure from established accounting practices is typically the result of either an intentional act or a negligent one. Where an accountant has intentionally departed from recognized practices, these acts or omissions may constitute breach of contract. A close look at your agreement with the accountant and their actions will help determine whether this is the correct cause of action when suing for accountant malpractice. Breach of contract occurs when:
- There is an agreement for the accountant to provide their professional services;
- The accountant fails to produce a specified result or, in some jurisdictions, fails to meet an appropriate standard of professional care; and
- This failure results directly and proximately in some harm to the plaintiff.
Negligence claims against an accountant must also establish some basic elements to succeed in court. Negligence claims are a kind of tort, which is a civil wrong that results in damage. The elements of negligence are:
- The accountant's duty of reasonable care in providing accounting services;
- A breach of that duty by the accountant's failure to use the skill, learning, and care normally used by accountants in similar circumstances;
- Damage to the plaintiff that was the direct result of the accountant's breach; and
- A causal relationship between the breach and the damages.
Either or both causes of action may be available. Laws governing statutes of limitations (time limits for filing a claim) and the kinds of damages available may vary depending on the cause of action available and the local jurisdiction's rules.
In many cases of accountant malpractice the accountant will make misrepresentations in order to conceal their wrongdoing. A misrepresentation may itself be an act of negligence, or it may be an intentional misrepresentation, which an amount to the tort of fraud or deceit. For example, the accountant may be attempting to conceal embezzlement or some other wrongful act. To establish a claim of intentional misrepresentation, the plaintiff must show that:
- There was a representation;
- The representation was false;
- The representation dealt with a past or present material fact;
- The representation is capable of being proved or disproved;
- That the accountant induces the plaintiff to rely upon;
- That the plaintiff did rely upon, suffering damage; and
- The misrepresentation was the proximate cause of the damage.
Intentional misrepresentations and gross negligence claims may result in higher awards for the plaintiff.
Learn More About Accounting Malpractice and Your Legal Options
Accounting malpractice cases can be very complicated and technical. Sorting through financial documents to determine where an accountant went wrong can be difficult, especially since they may have tried to conceal their errors. An experienced lawyer knows what to look for and can help make the process much simpler. If you feel that you may have been the victim of accounting malpractice the assistance of an experienced professional malpractice attorney may help clarify your claim and protect your rights.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.