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Did Your Accountant Fail to Appropriately Manage Your Accounts?

Did Your Accountant Fail to Appropriately Manage Your Accounts?

December 24, 2018
By Bary Gassman

When accountants intentionally or negligently ignore established accounting practices and their clients suffer financial losses, there may be cause for a professional malpractice claim. An accountant is bound to follow Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS) depending on the activities they perform on behalf of his or her clients. These standards have been put into use by the U.S. Securities and Exchange Commission to ensure proper financial reporting and transparent and unbiased auditing of accounts to prevent fraudulent activities.

Deviating from GAAP or GAAS

When an accountant intentionally departs from GAAP or GAAS, his acts or omissions could constitute a breach of contract. The signed contract between the accountant and client will generally dictate what actions can be taken against the accountant when malpractice has occurred. A breach of contract occurs if the accountant has failed to produce a specified result or has failed to meet an acceptable standard of professional care and these failures have directly and proximately caused some harm to the client.

Elements of Accounting Negligence

When establishing a negligence claim against an accountant, the plaintiff’s professional malpractice attorney must show proof that the basic elements of negligence occurred. An accountant has a duty of reasonable care when providing his services. When the accountant fails to use his skill, education, and care as others would in similar circumstances, he can be found negligent. The attorney must show that the damage suffered by the plaintiff was a direct result of the accountant’s breach and be able to show the relationship between the two.

Covering Up Accounting Wrongdoings

Often in cases of professional malpractice, an accountant may make misrepresentations to coverup his wrongful actions. This act could also be considered an act of negligence or intentional misrepresentation. The later action could be considered a fraud such as embezzlement. When establishing a claim of intentional misrepresentation, there must be proof that:

  • A false representation existed and was false
  • The representation with prior or current material fact
  • That representation can either be proved or disproved
  • The plaintiff relied upon the accountant to act professionally
  • That reliance caused the plaintiff to suffer damage
  • The accountant’s misrepresentation has been determined to be the proximate reason for the damage

When misrepresentations are intentional or gross negligence has occurred, a plaintiff may be entitled to a higher award for damages at the discretion of a jury or judge.

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