Just like attorneys and other types of professionals, accountants can be sued for malpractice under various circumstances. In most cases, they can be sued if they fail to provide services at a level expected of a reasonably competent accountant. Likewise, if they disregard their normal duty of care as an accountant, then they may also be held liable.
Accountant malpractice can be serious and can involve major legal issues and disputes. This type of malpractice can be a concern for many parties, including professionals, businesses, and other entities. This is because accountants are often responsible for keeping track of important financial and monetary data for a person or company.
Thus, if they commit malpractice, then it can end up costing the client large amounts of losses in income, securities, savings, and other assets. Accountant malpractice can also overlap with or interact with other legal considerations such as taxes and financial reporting.
Accountant malpractice can come in many different forms. However, there are two common types of accountant malpractice:
- GAAP and GAAS Violations: Accountants must follow specific accounting rules and regulations outlined in the Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS).
- If an accountant fails to follow these rules, they may be found liable for malpractice. Most of the time, you must show that your accountant violated GAAP or GAAS rules to make a legal claim for malpractice.
- Securities Violations: Accountants who handle sales of securities such as stocks must follow all federal and state regulations. These includeThe Racketeer Influenced and Corrupt Organizations Act (RICO) and The Securities Acts of 1933 and 1934. If an accountant fails to obey these securities laws, they may be guilty of malpractice.
- For example, an accountant who creates a false financial statement for a business in order to make an impact on the stock market may be found liable for malpractice.
Accountant malpractice can involve a number of specific types of conduct. Some of these may include:
- Using a client’s financial accounts for personal use or gain;
- Commingling funds from different accounts;
- Using fraud or misrepresentation when balancing workbooks;
- Omitting important information from a client or from government reports; and
- Various types of tax violations (tax fraud).
As with many personal injury cases, accountant malpractice is often based around the issue of negligence. Negligence involves an accountant’s failure to act in a manner expected of an accountant with similar training and background. The plaintiff party bringing the lawsuit, must show:
- The accountant owed a duty of care to the client. In many cases these could involve duties outlined in the GAAP or GAAS or other similar standards;
- The accountant breached that duty of care. An example of this is if they violated their duty not to use funds for personal use;
- The breach of that duty was the direct cause of the client’s harm or losses; and
- The plaintiff’s losses can be measured and verified in a court of law.
In such cases, the remedy for a violation will be a monetary damages award. This will serve to compensate the plaintiff for their losses caused by the negligence or malpractice. In cases where many different plaintiffs experienced losses from the same party or the same cause, class action lawsuits can sometimes result.
Note that the exact duties and responsibilities of an accountant may vary depending on several factors. These can include:
- The amount of experience the accountant has;
- The amount of training and education they received;
- The geographic location of the accountant’s practice;
- What types of accounting work they are doing;
- What types of financial accounts they are handling; and
- Various other factors.
The accounting industry is subject to numerous restrictions and regulations which other professionals are not subject to. These regulations have to do with both the responsibilities of the accountant and the mobility of the legal tender they are responsible for.
A fraudulent accountant, for example, may place revenue in foreign banks, making the money difficult to find. As such, accounting regulations may deal with these types of issues which might not be found in other professional industries like the medical or dental industry.
On the other hand, accountant malpractice lawsuits have much in common with other types of malpractice claims. For instance, like most other malpractice claims, accountant malpractice often involves some breach of duty and damages or losses to the plaintiff.
If you have been accused or are the victim of accounting malpractice, you may need to consult with a malpractice lawyer. A lawyer in your area can represent you in court and provide research for any legal inquires or concerns you may have.