Accountants and accounting firms may be held liable for malpractice when they perform their services negligently. Those who may sue for accountant malpractice include:
- Banks that relied upon information provided by the accounting firm
- Shareholders in derivative suits
- Investors who relied upon information provided by the accountant
Bases for Accountant Malpractice Suits
There are a number of factual scenarios that can lead to an accountant malpractice suit. The first is if the accountant makes an error while performing a business or personal audit. A small error early in the calculations can create a significant and material defect in the audit conclusions.
An accountant may also face a malpractice suit if he gives a client bad advice. In some instances, the accountant giving advice might just not know the answer, or may give a wrong answer, while in other instances there is a breakdown in communication between the accountant and client. Malpractice suits may also result when an accountant performs the agreed upon services but does so poorly, failing to live up to the client’s expectations.
Accountant malpractice suits are further complicated when an IRS audit is involved. The accountant may have taken an improperly aggressive position on a tax return, resulting in unanticipated penalties and interest being imposed on the client. An accountant may incorrectly allocate personal and business expenses, fail to properly recognize salaries versus distributions, fail to file the appropriate paperwork required given a company’s business structure, or miscalculate depreciations or carryover losses, costing the client valuable deductions.
Damages in Accountant Malpractice Suits
Plaintiffs in accountant malpractice suits often seek consequential damages, such as lost profits. In the case of malpractice suits involving IRS audits, plaintiff clients may demand that the accounting firm pay the interest, fines, and penalties imposed by the IRS.
If a plaintiff alleges that inaccurate statements prepared by the accountant induced her to make unwise investments, she may also seek recovery of capital through an accountant malpractice suit. For example, a person might hire an accountant to perform a business audit. If the accountant performs the audit without due care and fails to discover an underlying fraud, that fraud may go on for years. In such a case, the plaintiff may be entitled to recover the resulting costs from the accountant.
David A. Axelrod & Associates: Proven Results in Accountant Malpractice Cases
David A. Axelrod & Associates has successfully represented clients in accountant malpractice cases. In one such case, David A. Axelrod & Associates recovered over $2.6 million for a construction and lighting business which had money stolen from its corporate sharing plan by one of its employees. The recovery was from several businesses, including a national accounting firm and the third party administrator of the profit sharing plan.