Like physicians and attorneys, accountants can be sued for malpractice if they fail to provide services that a reasonably well qualified accountant would have been expected to perform.
Accounting malpractice may take one of three forms:
- Failure to meet the standards set forth by GAAP and GAAS: Accountants must follow certain accounting rules outlined in the Generally Accepted Accounting Principles (GAAP) and Generally Accepted Auditing Standards (GAAS). If an accountant fails to follow these rules he or she may be guilty of malpractice. This may include:
- Keeping poor financial records.
- Providing erroneous advice regarding accounting matters.
- Failure to detect defalcations.
- Dishonesty or malfeasance.
- Making deliberate misstatements on internal financial audits.
- Violation of Securities Laws: Accountants who handle sales of securities must follow all federal and state regulations, including The Racketeer Influenced and Corrupt Organizations Act (RICO) and The Securities Acts of 1933 and 1934. Accountants who fail to obey these laws may be guilty of malpractice. Some examples include:
- Wrongful certification of financial statements.
- Brokering without a license.
- Agreeing to manage securities when the accountant has a conflict of interest that would prevent him or her from remaining loyal to the beneficiary.
- Conducting trades against the wishes of the stock holder.
- Violation of Circular 230 Ethics Rules: Circular 230 consists of Regulations Governing Practice before the Internal Revenue Services. These regulations apply to all paid tax return preparers. Disregarding the rules and regulations of this important IRS publication may constitute accounting fraud. Some examples include:
- Filing improper tax returns.
- Failure to provide correct tax advice.
Minns & Arnett represents businesses and individuals with claims against accountants, securities brokers, auditors and tax preparers for professional negligence, breach of fiduciary duty, misrepresentation, and violations of the securities laws arising out of accountants’ audit and tax consulting services.