Accountancy is one of the most heavily regulated professions in the nation. Accountants are a driving force behind the economy, and their commitment to accurate, thorough financial tracking helps maintain public trust in the stock market. That is why accountant malpractice is such a damaging type of fraud.
Accountants who prepare financial statements on behalf of their clients are held to a set of rules known as the Generally Accepted Accounting Principles (GAAP). Accountants who conducts audits are held to the standards set forth in the Generally Accepted Auditing Standards (GAAS). These principles standardize the duty accountants have to their clients, as well as accountant services, so any two accounting companies can be accurately compared. When accountants violate these principles, they commit accounting malpractice, and they cast doubt on their company’s finances and value.
What Constitutes Accountant Malpractice?
Accountant malpractice can take many forms and result in significant losses for the professional accountant’s clients or their client’s investors. Some forms of malpractice are considered “simple negligence,” which is typically the result of sloppiness or a failure to use reasonable care in exercising their duties.
Negligent Accounting malpractice can include:
- Poorly kept books
- Deviation from GAAP and GAAS
- Incorrect financial advice
- Failure to detect fraud
There are four elements to a negligent accounting malpractice claim:
- The negligent party must be a professional accountant, not a layperson, as a professional accountant has a duty of care to the client to act with reasonable skill, learning and care as other similarly situated accountants;
- This professional accountant must have acted negligently, i.e., failed to use reasonable care in exercising his or her duties;
- The client must have suffered a financial loss due to the negligence; and,
- The client must be able to prove that the loss was caused by the accountant’s breach of the duty of care owed to the client.
Intentional accountant malpractice is considered much more serious, because the accountant is intentionally defrauding clients. Embezzlement, falsified information on audits or tax returns, certification of financial statements that the accountant knows to be false or intentionally concealing information to hide the accountant’s bad acts are all examples of intentional accountant malpractice.
If you have been damaged as a result of accountant malpractice, do not hesitate to reach out to an experienced attorney. It takes experience to know what to look for in financial documents, to determine where an accountant went wrong, and whether that wrong was intentional or negligent. Our team of attorneys specializing in fraud may be able to help you recover your losses.