For companies and individual investors, accountants are essential players. They are in charge of managing and giving their clients crucial financial information. They are required to follow stringent guidelines like the Tax Code and the GAAP (Generally Accepted Accounting Principles) when generating financial statements and tax returns. It becomes accounting malpractice when accountants violate these rules, and clients may suffer significant financial losses as a result.
Examples of accounting malpractice include:
- False tax advice
- Failing to file taxes as required
- Submitting false reports to stockholders
- Billing fraud
- Assisting or facilitating tax evasion, embezzlement, or accounting fraud
- Giving incorrect advice regarding estate planning
- Fiduciary duty breach
- Breach of contract
- Violating privacy laws
Fortunately, you don’t have to deal with the effects of accounting malpractice. You can seek damages for your loss and hold the accountant or accounting firm accountable for wrongdoing. However, for your claim to be considered an accounting malpractice, you must demonstrate that the accountant or accounting company owed you a duty of care, violated it, and resulted in losses. An accounting malpractice lawyer can come in handy in such a situation.
Having said that, let’s look at the legal consequences of accounting malpractice.
- Civil litigation
Clients who experience accounting malpractice may file civil lawsuits to demand restitution from the accountant or accounting company. You can bring a civil case to obtain compensation for the losses you suffer, including additional taxes, financial losses, fines, and other damages brought on by the malpractice. People who follow the accountant’s advice and make bad investment choices may also request capital recovery.
- Liability claims
Professional liability insurance protects accountants and accounting companies from charges of malpractice. Accountants are required to make restitution to harmed clients in cases of accounting malpractice by paying a settlement from the policy. Therefore, if a client files suit against an accountant or accounting company for carelessness, the insurance will defend them or negotiate a settlement.
- Regulatory actions
Accountants who commit accounting malpractice are subject to an investigation and may be punished if found guilty. Common enforcement actions include penalties, fines, permanent reprimands, license and certification revocation or suspension, and required ethics education. A permanent reprimand, a perpetual public record of wrongdoing or malpractice, may also be imposed on an accountant.
- Crime charges
Accountants may be charged with crimes if their accounting malpractice involves money laundering, fraud, or embezzlement. These offenses may carry penalties or both, as well as the potential for jail term.
- Tainted reputation
Accounting malpractice is a surefire way to get a bad name and bad press. Customers lose faith in the accounting firm, and prospective clients will hesitate to hire an accountant with a dubious reputation. This hinders prospects for career progress and the capacity to draw in clientele.
Wrapping it up
Accounting malpractice can undoubtedly significantly impact both the clients and the accounting or accounting companies. Consider speaking with an accounting malpractice lawyer if you have experienced losses or made poor business decisions due to accounting misconduct so you can hold the relevant parties accountable.