Seasoned Audit Leaders Assess Accounting and Auditing Malpractice

Audit and Accounting experts support plaintiffs and defendants litigating negligence cases

There are so many ways that shoddy accounting and faulty audits can hurt a business. An audit might fail to uncover fraud against the company. Given that fraud is a leading factor in business bankruptcies, that oversight could be very costly. Or an auditor could fail to identify a material error in a financial report, exposing their client to liability to shareholders and the SEC or other regulators. An accountant’s failure of due diligence in a merger or acquisition might result in a buyer overpaying for a lemon company. Fortunately, when accountants and auditors are negligent, their clients have a right to sue for malpractice. But who is to say whether the accountant/auditor performed below professional standards? For that answer, you can turn to North American Forensic Accounting. Our firm is comprised of experts in auditing, accounting, forensic accounting, and investigations. Our NAFA team examines financial records and workpapers to determine whether an accountant or auditor failed to follow professional standards as part of their engagement. We calculate the losses stemming from that error, and we work closely with the client’s attorneys to build a compelling case for any compensation due.

What is involved in an accountancy malpractice lawsuit

There are four basic elements to any malpractice case, which a plaintiff must prove by a preponderance of the evidence:

  • Duty — Duty exists when the client establishes a professional relationship with the accountant/auditor. This means the accountant owes the client a professional level of performance, as defined under the PCAOB’s Auditing and Related Professional Practices Standards, AICPA’s Code of Conduct, and State Laws regarding the practice of professional accountancy. This is also aligned with rules for auditing – Generally Accepted Auditing Standards (GAAS) and rules for accounting – Generally Accepted Accounting Principles (GAAP). Applicable professional standards and specific rules depend on the client and nature of the engagement. A business contract, usually referred to as an engagement letter would typically identify these standards and prove this element.
  • Breach — A breach is a violation of the duty. The plaintiff seeks to prove that the accountant/auditor breached professional duty by performing tasks in a careless, reckless, or deliberately substandard manner. In most cases, the allegation would be negligence, which requires proof the defendant made a careless error that a well-trained, conscientious accountant/auditor would not have made. NAFA evaluates such errors to determine if they were material and negligent.
  • Causation — Evidence of a mistake, even a huge one, is not enough to demand compensation. A plaintiff must prove that the mistake led directly to financial harm. Often, the plaintiff will present evidence of reliance on the defendant’s work product or advice that resulted in financial losses. The standard here is “but for” the negligent accounting, the plaintiff would not have sustained the specific losses.
  • Damages — These are the monetary losses the plaintiff suffered. Our NAFA team calculates all economic damages, which flow directly from the breach of professional duty.

In providing litigation support, our NAFA forensic experts scrutinize records to uncover errors and discern their impact. We assess those errors based on applicable standards and submit an opinion about whether the errors were material and negligent. We calculate all damages, tallying any losses that are reasonably related to the breach.

Common mistakes in accountancy that give rise to malpractice actions

Malpractice accusations come up in both business and personal accounting. The most common mistakes we’ve observed are:

  • Failure to identify materially misstated financial statements
  • Failure to find material fraud during an audit
  • Errors in business valuation
  • Failure of due diligence during a merger or acquisition
  • Failure to comply with regulatory requirements
  • Tax-related mistakes, such as errors on returns, bad advice, and failing to recommend available deductions

Accountancy malpractice can inflict severe financial hardship, and the victims ought to be fully compensated. On the other hand, accountants and auditors are often wrongly accused of negligence. If found liable, a damage award could cause great financial hardship, and the reputational loss could jeopardize their future. Accused accountants and auditors deserve a vigorous defense, and NAFA is pleased to contribute our resources whenever we’re called upon.

Contact North American Forensic Accounting to assist in accountancy malpractice claims

As part of our comprehensive litigation support, North American Forensic Accounting investigates alleged malpractice by accountants and auditors. To learn more, call us at 347-286-4860 or contact one of our offices online to schedule an appointment. NAFA serves clients from offices throughout the United States, including in Philadelphia, Pittsburgh, New York City, Atlanta, Charlotte, Miami, and the Tampa Bay Area.