1. Bad Deal Because of Bad Accounting. It happens all too often. A company employs accountants to perform due diligence as part of valuing a prospective acquisition. The accounting firm dispatches teams of auditors to review the books of the company. After generating substantial fees, the accountants present an impressive looking report. But critical factors impacting the value of the company are overlooked or buried in footnotes. The deal closes, and the true value of the acquisition - the value the accountants should have determined before the sale - is only evident months later. The law of accountant malpractice may rectify this situation.
2. Conflicting Client Interests. In their zeal to get good-paying work, accounting firms sometimes skirt the rules for avoiding conflicts of interest. This has increasingly become a problem as consolidation has occurred in the accounting industry. Moreover, the law is not as well developed on accountant conflict of interest as it is in the case of lawyer conflicts of interest. Accordingly, accountants often do a poor job of explaining the impact of conflicts to their clients. The validity of any specific consent to conflicts should always be evaluated. It is worth consulting with an expert in accounting to evaluate the nature of the conflict and the validity of the disclosure.
3. Accountants too eager to please. Good accountancy sometimes demands telling the client, "No." A common example occurs in tax practice. The client hears of an "aggressive" new strategy that has saved a friend a bundle on his taxes. He asks his tax accountant about it. Fearing the client may bolt to an accountant who is more "aggressive," the tax accountant pulls his punches in describing the risks of the strategy. He tries to protect himself with an ambivalent CYA letter containing mumble jumble about the risks, but never says in straightforward language not to use the strategy. As a result, the client enters into an economically disastrous transaction - and winds up owing tax penalties to boot. A client is entitled to clear, intelligible advice. If an accountant who was not concerned about losing the client would plainly advise against the strategy, the accountant who pulls his punches has committed malpractice.
4. Accountants loyal to management, not the entity. Accountants are hired by people, but they often represent corporations or other organizations. When accountants serve the interests of the people that hire them, rather than the entity they represent they can be guilty of accountant malpractice. Thus, when an accountant participates in consummating a transaction that he knows is good for a company's management, but bad for the company, the law of accountant malpractice may provide a remedy. For example, when the commissions paid to management increase based on the volume of the transactions they close, accountants whom management have hired for the company may be tempted not to raise accounting objections that would prevent a transaction from closing. Doing so is a classic example of accountant malpractice.
5. Accountant's contracts with clients. Accountants serve as valued advisors to their clients. Yet sometimes accountants profit unreasonably by becoming involved in their clients' business. If an accountant has profited unreasonably at the expense of his or her client, the client may have a remedy.
