Many people think of “malpractice” as something that applies only to doctors. However, people in a number of professions can be guilty of malpractice when they violate the law and/or the standards of their profession and cause harm to a client. Among those professionals are certified public accountants (CPAs).
Too often, people who hire a CPA to do their taxes, manage their money or help them with their business don’t know what actions can potentially make a CPA liable for malpractice. Let’s look at a few:
Investing in a business deal
A CPA should never join a client in investing in a business deal. Their responsibility is to their client and that client’s money. Putting their own money into a business venture can shift their loyalties to doing what’s best for themselves. Even if that isn’t the case, having a shared investment is a conflict of interest.
Getting into the middle of disputes
Whether it’s divorcing couples or quarreling business partners, a CPA should never get in the middle of a dispute, even if it’s with the intention of helping. If the CPA has been working for those on both sides of the dispute, their responsibility is to both of them. If a CPA gets involved in a dispute and provides advice that benefits one person to the detriment of the other, the person on the losing end could have a malpractice claim.
Failing to provide documentation
CPAs should provide documentation for everything they do, from the time they are hired to their disengagement with a client. That includes financial and tax advice. Documenting all advice can help prevent costly misunderstandings. If a CPA gives you advice, they need to stand behind that advice with documentation. This can be helpful if you take legal action later. Otherwise, it can be your word against theirs.
Of course, as with any professional, errors and omissions that result from negligence or lack of knowledge can also be grounds for legal action. CPAs typically carry insurance to help them cover the damages they may end up having to pay in a lawsuit. Regardless of whether their insurance covers the issue that has cost you money, it’s wise to determine your legal options.