Malpractice is any kind of error, omission or deviation from standard practice that causes harm to a client. When it comes to accounting, malpractice specifically refers to a failure to adhere to the Generally Accepted Accounting Principles (GAAP or Generally Accepted Auditing Standards that form the basis under which accounting is commonly practiced. Malpractice in accounting is broken down into two categories — simple and gross — with simple reflecting mistakes caused by carelessness or negligence and gross referring to intentional deviations. Both simple and gross accounting malpractice can lead to significant financial losses for a client and can be the subject of litigation seeking compensation for damages suffered. In the case of gross accounting malpractice, a guilty verdict often includes punitive damages.
To prove that malpractice in accounting has occurred, three basic elements must be established. They are:
- That a duty was owed by the accounting professional to the person filing the lawsuit
- That the defendant breached their duty to their client
- That the client suffered damages as a result of the breach of duty
Whether the charge against the accounting professional is simple or gross malpractice, it is generally reflective of failure to act responsibly and in keeping with the generally accepted guidelines that clients assume will be adhered to. When an individual or business entity contracts with an accounting professional to provide accounting services, they do so with the understanding and trust that the services provided will be deployed in accordance with those standards, which include compliance with state law as well as technical and ethical standards, competence and quality, and objectivity. Clients rely on this level of professionalism, as errors or misstatements in their financial statements or tax records can carry serious repercussions
Accounting malpractice can take many forms, including:
- Improperly prepared tax returns
- Incorrect advice on accounting matters
- Poorly maintained financial records
- Failure to adhere to standards of care
- Faulty audits
- Failure to detect fraud
- Wrongful certification of financial statements
- Deviations from GAAP, GAAS and PCAOB rules
- Faulty estate planning advice
- License fraud
When an accounting professional’s mistakes go beyond carelessness and are found to have been made either deliberately or with reckless disregard, it qualifies as gross accounting malpractice.
If you or your firm has suffered significant losses as a result of an accounting professional’s failure to follow the required standard of care or generally accepted auditing or accounting standards, you need an experienced accounting malpractice attorney who can evaluate the extent of their negligence and guide you in pursuing damages. For more information and assistance, contact us today to set up an appointment.