What You Need To Know About Accounting Malpractice Lawsuits

What You Need To Know About Accounting Malpractice Lawsuits

Accountants are expected to follow standards of professional care and conduct in the course of providing professional services to their clients, such as tax preparation, business consulting, and asset management.
When accountants do not uphold their professional responsibilities and their client suffers financial losses as a result, the client may be able to recover their losses by filing an accountant malpractice lawsuit.\

ACCOUNTANT STANDARDS OF PROFESSIONAL CONDUCT

Accountants are expected to abide by rules of professional conduct. These rules are published by the American Institute of Certified Public Accountants (AICPA) and are known as “Generally Accepted Accounting Principles” (GAAP). Utah also has laws concerning public accountancy, based in part on the standards set forth in GAAP.
Under GAAP and state law, Utah accountants—whether they are engaged in audit, tax, consulting, or asset management services—are expected to follow professional standards that include:
• Remaining free of conflicts of interest
• Not knowingly misrepresenting facts
• Only performing those services that can be completed with competence
• Exercising due professional care
• Obtaining sufficient data to afford a reasonable basis for conclusions or recommendations
• Following the rules set forth by the Utah Board of Accountancy
• Meeting licensing requirements (including continuing education)
• Maintaining accountant-client communications confidentiality

Because many of these standards are very broad and could cover a wide variety of misconduct, you should discuss your particular circumstances with an experienced accounting malpractice attorney.

EXAMPLES OF ACCOUNTANT MALPRACTICE

Deviation from professional standards can lead to an accounting malpractice lawsuit. To have a case, however, you must have suffered financial losses from the alleged misconduct.

Common examples of accountant misconduct that can lead to a lawsuit include:
• Making tax return errors or giving incorrect tax advice
• Failure to recommend an audit
• Failure to detect embezzlement or fraud during an audit
• Preparing inaccurate business reports or manipulating financial statements
• Inaccurately evaluating a financial transaction or statement
• Keeping poor financial records
• Committing inventory, accounts payable, or accounts receivable errors
• Giving bad advice about an estate planning matter or an investment
• Fraud, such as overbilling, embezzlement, license fraud, or conflicts of interest

Rising Lawsuit Costs Linked to Decrease in Tort Filings

An analysis of state court data by the Wall Street Journal challenges the notion that Americans are overly litigious and raises questions about prohibitive litigation costs.

According to WSJ, tort lawsuit filings (lawsuits for civil wrongs) declined more than 80% from 1993 to 2015. One of the main factors cited for the decline in tort filings is the high cost of bringing suits. Data from the National Center for State Courts shows that the median cost of civil cases is $43,000 – $122,000.

High lawsuit costs speak to another litigation trend: more clients saying they want some form of alternative fee arrangement such as contingency-fee litigation. But even as clients demand that law firms move away from the inefficient hourly billing model, most firms continue to use non-hourly billing on a very limited basis.

THE HIGH COST OF JUSTICE

In “We Won’t See You in Court,” the Wall Street Journal describes a “nationwide ebb in lawsuits” that contradicts the perception of Americans flooding the courts with claims.

WSJ’s analysis of data from the National Center for State Courts (NCSC) finds that tort cases declined from 16% of state court civil filings in 1993 to about 4% of filings in 2015—a difference of more than 1.7 million cases.
But there was one notable exception to this downward trend. From 1993 to 2015 contract cases—which includes debt collection, foreclosure, landlord-tenant disputes, employment contracts, contracts for goods and services, and real estate transactions—increased from 18% of the civil docket to 51%.

Among the reasons cited in the article for the overall decrease in tort filings are pro-business tort reform efforts and the rising cost of filing lawsuits.

Judge Gregory Mize of the District of Columbia District Court is quoted as saying that, “People are just not filing cases like they used to. They are not seeking trials like they used to. It’s so expensive and time-consuming.”
NCSC data on civil litigation costs confirms that justice is not cheap. In its study “Estimating the Cost of Civil Litigation” NCSC modeled the cost of civil cases using the time expended by attorneys to resolve typical torts, including professional malpractice, breach of contract, employment disputes, and real property disputes. Hourly billing rates reported by attorneys (which ranged from $150 – $600 per hour) were used along with attorney time expenditures to calculate civil litigation costs.

Importantly, NCSC found that, “for all case types, a trial is the single most time-intensive stage of litigation, encompassing between one-third and one-half of total litigation time in cases that progress all the way through trial.”

In many cases, a plaintiff can recover the full value of their claim only by going to trial. Opposing counsel is well aware of this, which is why they often try to reach a pretrial settlement or drag the case on as long as possible and drive up litigation costs to the point where the plaintiff—unable to continue paying a lawyer—is forced to accept a settlement.

LEGAL CLIENTS DEMANDING MORE ALTERNATIVE FEE ARRANGEMENTS

Legal consulting firm Altman Weil, Inc. performed a survey in 2015 that found “more and more clients are saying they want some form of alternative fee arrangements…but most law firms still don’t approach AFAs proactively.”
While more than 93 percent of firms surveyed reported using some non-hourly based billing, more than half of the firms generated 1 to 10 percent of their fees from non-hourly billing. And 68% of firms offered AFAs only in response to client requests.

These trends are corroborated by a 2015 Claims Litigation Management Advisors study in which sixty-seven percent of litigation executives polled anticipated no change in the use of AFAs over the next five years.

A well-known problem with the hourly attorney fee model is that it can reward inefficiency and create a misalignment between the interests of attorneys and those of their clients. The contingency-fee model, on the other hand, aligns the interests of attorney and client and creates a shared goal for the case—maximizing the recovery.

Free Initial Consultation with Lawyer

It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506
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