Accounting Liability

Introduction

If a doctor, lawyer, accountant, or other professional person makes a mistake and someone or something is injured, professional malpractice may have occurred. Professional malpractice law deals with the negligence or misconduct of people in the dental, legal, and medical fields, as well as many other professionals. Accountants, for instance, may be sued if they fail to comply with generally accepted accounting principles or generally accepted auditing standards and someone suffers economic losses as a result. A lawyer experienced in professional malpractice law can help an accountant determine whether malpractice has in fact occurred, and can represent the accountant throughout the litigation process.

Accountant Malpractice Cases Are Similar to Those Involving Other Professions.

Professional malpractice occurs when a person practicing his or her profession improperly performs the duties of that profession, and someone is injured as a result. A professional malpractice suit can be brought against any type of professional, including accountants, architects, clergypersons, dentists, doctors, engineers, lawyers, and psychologists, although malpractice suits most often involve members of the medical and legal professions.

The typical malpractice suit alleges that the professional defendant was negligent. Negligence is conduct that falls below a legally established standard of care that must be met in order to protect others from an unreasonable risk of harm. The plaintiff in a malpractice case must show that the negligent defendant violated a reasonable standard of care, which usually means the level of care that is the customary or usual practice of other members of the profession. If, for example, an accountant fails to file a client's tax returns on time, that accountant has violated a basic standard of care, through his or her carelessness. Similarly, if a lawyer fails to file a client's lawsuit within the time limits prescribed by law, the attorney may be charged with negligence and be subject to malpractice allegations. Few malpractice claims are, however, as clear as these examples.

Although there are certain distinct features in cases involving the different professions, there are also some elements common to nearly all professional malpractice cases. For instance, the plaintiff in a malpractice case generally must establish four elements in order to recover. First, the plaintiff must show that the professional being sued had a duty to him or her. Second, the plaintiff must prove that the professional breached that duty. Third, the plaintiff must show that he or she was injured. And fourth, the plaintiff must establish that the professional's breach was the proximate cause of the injury.

Proximate cause is a legal concept that poses the question, "Was the breach of duty sufficiently responsible for the injury so that the professional should be held accountable?" Consequences that are so remote from the breach that they could not have been anticipated may be deemed not proximately caused by the breach. Similar to the example above, if an accountant fails to file a client's tax return on time and the client becomes very agitated and stressed as a result, goes to a bar, gets drunk, and gets in a fist fight with someone twice his size, it is unlikely that a court would conclude that the accountant's breach of duty proximately caused all of the client's injuries sustained in the barroom brawl.

In an accountant malpractice case, the defendant may be able to establish freedom from liability by showing that he or she complied with written rules of conduct for the accounting and auditing professions. The "generally accepted accounting principles" and "generally accepted auditing standards" are frequently used in accounting malpractice cases to measure the defendant's performance. Although compliance with the rules is not a complete defense, it is harder for the plaintiff to prove a breach of the standard of care by a professional whose conduct fell within these guidelines.

The following example of professional standards applicable to certified public accountants is illustrative of the types of principles that guide professionals in the course of performing their duties.

• The public interest - Persons using the CPA title shall accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.
  
  
• Integrity - To maintain and broaden public confidence persons using the CPA title shall perform all professional responsibilities with the highest sense of honesty.
  
  
• Objectivity - Objectivity is to be maintained by persons using the CPA title. Specifically, persons using the CPA title shall:
  
  
  1. Avoid rendering professional services where actual or perceived conflicts of interest exist;
     
     
  2. Be independent in fact and appearance when providing auditing or other attestation services.
  
  
• Due care - Persons using the CPA title shall comply with state law and the professional technical and ethical standards, maintain competence, and strive to improve the quality of services, and discharge professional responsibility to the best of the CPA's ability.
  
  In addition to these general principles, many specific standards more precisely define the professional's responsibilities to his or her clients.

Accountant malpractice cases may also be based on violations of state or federal securities laws. Accountants frequently issue financial statements that are used in connection with securities offerings and submitted with annual reports or other filings that are required of publicly traded companies by the Securities and Exchange Commission. If the statements are erroneous and cause a negative impact in the market, investors may sue the accountants in an attempt to recover their losses.

Conclusion

Generally speaking, any professional can be liable for damages if he or she had a duty to a client, the duty was breached, the client was injured, and the breach caused the injury. Accountants are no exception. A lawyer experienced in professional malpractice law can help a potential defendant determine whether he or she has committed malpractice, determine what defenses may be available, and provide represent throughout the entire litigation process. Obviously, since the Enron, WorldCom, and other high profile corporate financial scandals and bankruptcies, the area of accounting standards, especially as it relates to public corporations, has been closely examined by all levels of government and professional groups. Legislation, such as the Sarbanes/Oxley Act, cuts across all level of businesses and imposes significant regulatory obligations on the accounting profession and many businesses. Lawyers experienced in professional malpractice law can also advise accountants on preventing malpractice through good professional practices and review the new legislation.

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