When accountants conduct work at a level that falls below the minimum standard for their profession, they will most likely be liable for damages that result from their negligent work. While the clients of the accountants most certainly can sue for negligence committed, it may not always be the case for third parties who have relied on the accountants’ work and suffered economic damages to sue.
There are several different views on this issue, but they can be grouped into the following three categories:
1. Parties in privity – Accountants are only liable to third parties who have some kind of a legally recognized interest in connection (i.e. in privity) with the accountants. An example would be where a client hires an accountant to perform work for the benefit of a third party.
2. Knowledge of reliance – Accountants are liable to third parties, even in the absence of privity, if the accountants:
(a) Knew that their work would be relied on by the third parties (or a class of third parties); or
(b) Knew that their clients for whom the work was performed intended to supply the work to third parties (or a class of third parties) who would rely on the work; and
(c) The third parties justifiably relied on the accountants’ work and utilized it for a particular use that the accountants or the clients intended to influence.
3. All reasonably foreseeable victims – Accountants are liable to all reasonable foreseeable third parties who may reasonably rely on the accountants’ work, whether or not the accountants have privity with the third parties or knowledge of reliance.
So depending on which view the court in a jurisdiction takes, third parties may or may not be able to sue accountants for economic damages resulting for their reliance on the accountants’ negligent work.
Can an Accounting Firm Be Liable For Ordinary Negligence Committed By Nonprofessional Members (e.g. non-CPAs) of the Firm?
Yes. The firm generally will not be able to escape liability just because the negligence was not committed personally by the accountants but by their subordinates.
If you have been accused of or are the victim of accountant malpractice, consulting an experienced malpractice lawyer can be extremely helpful. A malpractice lawyer can help you understand how the law affects your case and represent you in court.