Like any professional, accountants could be sued by their clients depending on the circumstances and applicable laws. If you’ve suffered financial harm because of intentional acts by an accountant or they made mistakes serious enough to be considered negligence, you may have grounds for a claim against their malpractice insurance carrier or for filing a malpractice lawsuit. Our friends at Focus Law LA discuss the role of an accountant in a business below.
Who Is An Accountant?
Accountants have highly specialized education and skills needed by nearly every company. They record business transactions for an organization, report on a company’s performance to its management, issue financial statements, and file tax returns. They may also give financial advice to management or suggest ways to spend or invest money that benefits a company by reducing its tax liabilities.
Accountants have access to a company’s most confidential information. Releasing it in an unauthorized way could seriously harm a business. They may be hired as employees or as contractors.
What Should An Accountant Do?
A competent accountant should do the following:
- Prevent conflicts of interest
- Not omit or misrepresent material facts
- Perform services competently and avoid services that they’re not qualified to complete competently
- Perform due diligence to have a reasonable basis for their conclusions or recommendations
- Comply with applicable state and federal statutes, regulations, and rules
- Meet licensing and continuing professional education requirements
- Maintain accountant-client confidentiality
What they should do in a specific situation varies, but these are overall requirements.
What Is Malpractice?
It often involves negligence, a legal theory that’s the basis of many lawsuits covering a wide range of situations. In the context of an accountant, the plaintiff (the injured party) has the burden of proving that it’s more likely than not that the elements of malpractice took place. Those elements of accountancy malpractice are the following:
- The accountant owed the client a duty of professional care
- The accountant breached that duty of care by failing to follow applicable professional standards, breaching specific provisions of the accountant-client contract, or committing an intentional wrongful act, like embezzlement or fraud
- The client suffers financial losses as a result
- There’s a legal and factual link between this breach of duty and the client’s losses
These kinds of claims often rely on the expert opinion of forensic accountants, who specialize in investigating accountants’ possible mistakes, negligence, and criminal acts.
What Acts By An Accountant Constitute Malpractice?
What may be malpractice depends on the facts of the situation and the applicable state law. It involves not complying with the list of what should be done above, and it may be an issue in the following circumstances:
- Using their client’s resources for their personal use or gain
- Commingling funds from different accounts
- Engaging in misrepresentation or fraud when balancing a company’s finances
- Failure to disclose important information to or from a client or a government report
- Violating tax laws, regulations, and rules
If you believe your accountant is committing malpractice, contact your business litigation lawyer to discuss the situation and what you should do next. Depending on what’s going on, your accountant may commit a crime, and law enforcement may get involved.