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What Constitutes Accountant Negligence?

By Florence J. Tipton
Updated May 16, 2024
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Accountant negligence usually happens when an accountant acts with knowledge that an accounting practice was inappropriate and client damages may occur. Failing to perform within ethical and legal guidelines of accounting standards may lead to accountant negligence. The accountant is considered to have willfully violated fiduciary trust and responsibility — beyond using poor judgment. Further, the duty of care — the expectation that the accountant will act in the best interest of the client — is breached. Fraudulent financial statements of a company may also result from accountant negligence.

Based on accounting standards, an accountant is generally obligated to anticipate outcomes that may be harmful to clients. Experience and training in accounting standards are intentionally ignored while fulfilling the duties of an accountant. As a result, performance below those standards may leave the accountant liable for damages to the client.

Most accountants are expected to use discretion in accounting matters to avoid damage to the client who relies on an accountant’s professionalism and judgment. Otherwise, a lack of discretion could be considered negligent in duties and subject to an accounting negligence lawsuit. Neglecting the fiduciary responsibility for properly handling financial matters may constitute accountant negligence.

Claims of accountant negligence may occur if evidence is linked to the probability of accounting fraud, and not the result of an unavoidable accounting error. An accounting error does not have the same legal weight as accountant negligence. The errors may occur because an accountant does not have the appropriate amount of experience to handle tasks with due care.

In general, the rule of law that determines accountant negligence involves showing evidence that a duty of care for financial protection was expected between the client and accountant. When the accountant fails to act in legal compliance with duty of care, a breach of conduct has occurred. The breach of conduct may lead to financial injury for the client as a result of the abandoned fiduciary responsibility.

Some laws may define this as gross negligence, depending on what the evidence proves. The law may also require proof of reasonable knowledge that the practice was inappropriate and that damage to the client was likely to occur. Absent the negligent actions of the accountant, proof that the client would not have suffered damages may also be required.

A deliberate and premeditated practice to manipulate the financial performance of a company is also a prominent form of accounting fraud that is the result of negligence. Accounting fraud may occur by not including a total accounting of assets and liabilities on financial statements. In other circumstances, inflated sales revenue is generally used to boost a company’s earnings statement. Underreporting accounts receivable records that were written off as uncollectible bad debt is another example of accounting fraud.

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