Failure to Comply with GAAP & GAAS
As an individual or small business owner, you place your trust in your accountant, your auditor, your CPA, and other financial professionals. In some cases, this trust can be misplaced, and you could find yourself the victim of accounting malpractice. When financial professionals fail to adhere to Generally Accepted Accounting Principles (GAAP) or Generally Accepted Auditing Standards (GAAS), accounting malpractice may have taken place.
Understanding GAAP and GAAS Standards
GAAP provides a framework, which covers both general principles as well as specific practices. A key aspect of GAAP is the emphasis on “general,” which allows for some discretion in how principles are followed. Essentially, this means that variations in applied accounting methods are accommodated only so long as they adhere to stated principles. Business owners and third parties who rely on financial statements are entitled to be confident the data is free of inconsistencies or bias. One of the primary methods of overcoming any potential accounting errors or omissions is through the auditing process.
GAAS contains systematic guidelines, which are meant to ensure accuracy, consistency, and verifiability of accounting procedures and results. GAAS guidelines are divided into general standards, the standards associated with fieldwork, and the standards associated with reporting the results. The auditor must evaluate whether the financial statements of the business are free of material misstatement and whether that misstatement is due to fraud or simple error.
Elements of an Accounting Malpractice Suit
If your financial professional failed to follow the guidelines and standards set forth under GAAS and GAAP, negligent conduct may have occurred. The legal elements of an accounting malpractice suit include the following:
• Your financial professional has a responsibility to you and all clients;
• Should the financial professional engage in negligent activities in your business finances or personal finances, a breach of contract exists;
• You must show you suffered financial loss, and
• You must prove the financial professional’s breach of duty or responsibility was the cause of your financial losses.
Two Types of Negligence
If your accountant engaged in such practices as giving you incorrect advice on accounting matters, failure to detect fraud, accounts receivables errors, faulty estate planning advice or poorly kept financial books, these are likely incidences of simple negligence. Simple negligence includes errors the average accountant would not make.
Gross negligence includes more serious errors in which accepted accounting standards are significantly deviated from. Embezzlement, violations of federal and state securities laws, wrongful certification of financial statements, and license fraud are examples of gross negligence committed by financial professionals.
How Accounting Professionals Can Damage Your Business
Accounting professionals must maintain a certain level of skepticism regarding risk factors that may contribute to fraud, especially when performing an audit. These professionals must also be able to identify factors commonly associated with fraud. These factors include when the profitability of the company is threatened by economic, industry, or entity operating conditions or when there is excessive pressure to meet financial targets or when internal controls are deficient. In any instance when a financial professional’s negligence has cost you a significant amount of money, you may be the victim of accounting malpractice. It is important that you speak to an experienced accounting malpractice attorney as soon as possible; the statute of limitations for bringing an accounting malpractice case in Washington D.C. is three years, so don’t miss your window of opportunity to obtain justice.
Contact Accounting Malpractice Lawyers
At Patrick Malone & Associates, our accounting malpractice lawyers understand how devastating accounting malpractice can be for individuals and small businesses. As experienced malpractice lawyers, we have represented individuals and small businesses in the Washington, DC metro area, Virginia, and throughout the State of Maryland. Our Washington DC accounting malpractice attorneys work tirelessly from the very start to ensure that all our clients receive the compensation they need to offset the wrongs that have been done to them. Call us at 1-202-742-1500 or 1-888-625-6645 or fill out our confidential contact form for a FREE Consultation and review of your case.
The accounting malpractice attorneys at Patrick Malone & Associates have successfully represented injured individuals in Washington, DC, Arlington, Alexandria, Annapolis, Rockville, Baltimore, Richmond, Fairfax, Montgomery County, Prince George’s County, and other locations throughout Maryland and Virginia.