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By Jonathan Bechtel
Founding Partner

Accounting malpractice doesn’t happen in a vacuum. It affects businesses and investors and, in turn, everyday people who are trying to provide for themselves and their families. For this reason, the courts allow victims to take civil action against those who are responsible for inaccurate financial reporting and other forms of accounting malpractice. If you or your business has been affected because of an accountant’s negligent conduct, reach out to Stanfield Bechtel Law.

Types of accounting malpractice

Mishandling financial accounts takes many forms, and can be the result of either negligent or intentional actions such as:

  • Making errors on tax returns
  • Giving incorrect or incomplete tax advice
  • Manipulating financial records
  • Providing incorrect reports to stockholders or business partners
  • Failing to properly audit financial statements
  • Failing to detect criminal activity such as fraud
  • Improperly maintaining records
  • Engaging in conflicts of interest
  • Committing errors with inventory, accounts payable, or accounts receivable
  • Making inaccurate business valuations
  • Giving bad investment advice

How accounting malpractice affects businesses and investors

Mistakes and misconduct in accounting can harm an individual’s or business’s finances in several ways, including:

  • Tax problems. Errors, tax evasion, and tax fraud can quickly put a business in the crosshairs of the IRS or state and local taxing authorities. Running afoul of these agencies can have serious criminal and civil implications for businesses, owners, and investors, such as additional taxes, penalties, interest, and even prison time.
  • Financial harm. An error in accounting can lead a business to make poor financial decisions that may spell disaster. For instance, a company wishing to purchase another business may rely on an accountant to assess its value. Mistakes in accounting could mask how poor the business is performing and end up saddling the purchasing company with a major liability.
  • Bankruptcy. In a worst-case scenario, an accounting error (or, more likely, a series of errors) may wind up causing a business to declare bankruptcy. Although there are ways to effectively reorganize a bankrupt business, the loss of market share and profitability might never be reversed.
  • Reputation loss. Financial scandals in recent years have brought ill repute to the companies that hire the at-fault accountants. Even if the mistake was not the fault of your organization, you could experience guilt by association and therefore take a drastic hit to your reputation. Fairly or not, investors and other stakeholders may judge your business as incapable of wise decision-making.
  • Investor loss. Investors rely on financial statements to make their decisions, so errors can prove costly. Many investors are non-institutional (individuals) who depend on accurate information to make significant financial choices in where they invest. As an example, malpractice could cause an investor to unknowingly put money into a Ponzi scheme or other fraudulent venture.
  • Lawsuits and damages. If your business is harmed because of bad accounting, then the damage could spread to investors, shareholders, and others. You may then be faced with lawsuits that could lead to significant damages being awarded to the plaintiffs.

Why does accounting malpractice happen?

Unraveling a case of accounting malpractice requires an understanding of why it occurs. Some common causes are:

  • Failure to adhere to GAAP, GAAS, AICPA, or other accounting standards (in other words, negligence)
  • Failure to follow the terms of an accounting contract (breach)
  • Unintentional errors like missing a filing deadline
  • Breach of fiduciary duty, for example by allowing conflicts of interest
  • Inexperience or incompetence
  • Fraud and other criminal activity

Here to Help Recover Your Losses

Taking legal action against a negligent or fraudulent accountant can help victims of malpractice recover compensation and put an end to irresponsible accounting activities that may harm others. But it takes dedicated legal representation to make a strong case against the at-fault party. To learn more about how Stanfield Bechtel Law represents Connecticut victims of accounting malpractice, call us today.

About the Author
Jonathan believes the client should always come first, and aims to deliver a positive experience to exceed client expectations.