Accounting Malpractice

Accounting malpractice occurs when an accounting professional does not follow professional standards and deviates from General Accepted Accounting Principles (GAAP; for accountants) or General Accepted Auditing Standards (GAAS; for auditors). If an accountant or auditor is negligent, or violates the rules and guidelines of standard accountant practices (such as the GAAP or GAAS) and causes harm or financial loss to a client, he or she can be held legally responsible. In situations involving accountant malpractice, victims may be able to file an accounting malpractice lawsuit to recover lost money.

An example of accounting malpractice is when an accountant gives a client advice and that advice is incorrect. The victim may wind up paying additional expenses or fines due to the incorrect accounting advice.

Some Accounting Malpractice suits include the following:

• Accounting Malpractice due to fraud
• Accounts Receivable Errors
• Certified Accountant Professional (CPA) License Fraud
• Failure to Detect Defalcations
• Failure to properly audit financial statements
• Deviations from GAAP & GAAS Standards
• Inventory Errors
• Securities Fraud
  Tax investment cases
  Improper tax advice
  Dishonesty or malfeasance
  

Tax Preparation

According to Michael Lynch and Nicholas C. Lynch, the number of malpractice cases alleging negligent tax advice is increasing. Their article, "Advisers Beware: The Cost of Being Sued Is Going Up" (12/01/07) notes that negligent tax advice is the cause of most malpractice claims filed against CPAs.

Tax preparation malpractice claims include failing to file a client's return on time without applying for an extension and failing to properly complete the client's tax forms.

Audit Accounting Malpractice

Audit claims involve failure on the part of the accountant to detect fraud or failure to advise clients of internal control weaknesses that should have been corrected.

According to AICPA (American Institute of CPAs), more than 35 percent of all audit malpractice claims allege failure to identify, evaluate and report management fraud. Auditors are responsible for performing fraud risk assessments and designing auditing approaches to increase the chances of detecting material fraud. They are also responsible for evaluating the implications when fraud allegations are reported. Failure to perform these duties can result in allegations of accounting malpractice.

To be successful in an accounting malpractice lawsuit, the plaintiff must establish four elements:

1. The plaintiff must show that the accountant had a duty to the plaintiff.
2. The plaintiff must show that the accountant breached that duty.
3. The plaintiff must show that he or she was injured (including financial harm)
4. The plaintiff must show that the accountant's breach was the proximate cause of the injury.

Accounting Malpractice Legal Help

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Published on Jul-9-10