Accountants Archives - Professional Liability Matters

November 11, 2019 Accountants / Engagement Letters

Engagement Letter Defense Rejected

We often write about the importance of engagement letters, in fact we have an entire sub-category devoted to engagement letter defenses. That’s because the engagement letter is the first line of defense. A letter that clarifies the accountant’s obligations, scope of duties, identity of the client, billing terms and other key clauses is generally a must for most engagements. Accountants may also opt to include exculpatory language such as limitation of liability provisions, damages caps, or other contractual language which may aid in the defense …

January 24, 2018 Accountants

Accountants Still Targeted a Decade after Recession

Similar to the fallout from Enron, the Great Recession of 2007 saw many accounting firms back in the cross-hairs for allegedly failing to warn of the impending financial doom. Many of these entities (turned plaintiffs) were massive companies with billions in assets, leading to protracted and expensive litigation. While some cases settled to avoid further legal costs, one major accounting firm was recently found liable for violating audit standards for one of its major bank clients prior to the Great Recession. The presiding judge is …

January 17, 2018 Accountants / Defenses / Legal Malpractice

How Long Is Too Long to Wait for Malpractice Actions?

One of the most common problems facing a would-be plaintiff considering a malpractice case is when to file suit. Similarly, those that defend professionals must consider whether to move to stay proceedings if applicable. Especially with accountants and attorneys, causation and damages are difficult to calculate until the underlying matter has concluded. This means that the notoriously long legal process can often come into conflict with the statute of limitations, or create evidentiary problems. The decision is whether to wait many years for the underlying …

July 31, 2017 Accountants / Experts

Be an Expert with CPA Experts through the AICPA Code

Most jurisdictions require that a plaintiff establish allegations of accounting malpractice through expert testimony. Moreover, accounting experts are often relied upon to establish damages. Accordingly, the vast majority of litigators, even those outside of the malpractice community, will encounter a CPA expert witness. This may be daunting for attorneys. Fortunately, there’s a handy, but underutilized, guide. The special reports to the AICPA Code of Professional Conduct include ethical standards required of every CPA. The reports provide a ready-made guide for evaluating the efficacy and admissibility …

April 17, 2017 Accountants

Attorneys: Be a Watchdog for Your Accountant Clients

The standard of care governing every professional begins with the scope of the engagement. That may seem fairly obvious to those in the professional malpractice community but it is often misunderstood by laypeople. Isn’t a CPA engaged to detect fraud? Isn’t a lawyer engaged to win my case? One of the difficult aspects of defending a malpractice case is overcoming the lay perspective of the precise role of a professional. Often the defense of a professional can turn on whether the fact finder fully understands …

March 8, 2017 Accountants / Cyber-Liability / Design Professionals (A&E)

IRS Warns CPAs: Beware of Phishing

Businesses are increasingly becoming the targets of sophisticated cyber-attacks, and professionals are no exception. When cyber-criminals breach a professional service firm, they not only may gain access to the firm’s corporate data, but also confidential information from the firm’s clients. Therefore, it is incumbent on all professionals to make data security a priority.

In order to combat this threat, the IRS recently issued a warning to accountants and tax preparers about a new phishing scam intended to access professional and client information. The phishing …

March 6, 2017 Accountants / Defenses

CPA Takes Advantage of Procedural Quirk

The idiosyncratic nature of the Louisiana legal system is one that is noted, if not explored, in many law schools around the country. Even as early as high school, many teachers will explain that Louisiana is unique insofar as its legal system is based primarily on Spanish and French civil law, rather than the British tradition used in the other 49 states. The differences between Louisiana and the rest of the country do not end there, however, and a large accounting firm was recently successful …

December 20, 2016 Accountants / Defenses

When Does the Clock Start?

The application of the statute of limitations affirmative defense is theoretically simple, yet practically complex. Often, the issue is when does the clock start; i.e. when does the claim accrue. The result varies by state and may come down to the specific fact pattern. The water may be muddied further if the plaintiff incurs more than one injury. This is relevant to the professional malpractice community. Take for example a recent California accountant malpractice case involving state and federal audits and $10 million on the …

December 16, 2016 Accountants

Auditor Dismissed from $50 Million Securities Class Action Suit

In a decisive win for the malpractice community, an independent auditor achieved dismissal in a securities fraud class action lawsuit by way of a 12(b)(6) motion. The Middle District of PA dismissed some of the claims against a troubled bank and all claims against the bank’s public offering underwriter and its outside auditor. The court accepted the auditor’s arguments that the plaintiff had failed to establish the requisite element of scienter necessary to maintain a securities fraud claim and, moreover, had failed to properly plead …

October 24, 2016 Accountants

Auditor Has No Fiduciary Duty to Company

In a widely watched and long-awaited decision, the North Carolina Supreme Court definitively determined that an independent auditor has no fiduciary duty to the company, overturning a 2014 Court of Appeals decision finding that such a duty existed. The court, however, was evenly divided on the issue of whether the company’s claims were barred by the defenses of in pari delicto and contributory negligence, leaving undisturbed (albeit without precedential value) the Court of Appeals’ decision that the defenses did not bar the remaining claims. Certified …