California business owners often turn to an accountant to help manage their finances. Hiring such a professional can reduce the odds of paying too much in tax or being accused of breaking the law. However, it is possible that an accountant will engage in malpractice that could leave a company vulnerable to criminal or civil penalties. To prevent this from happening, accountants should follow either Generally Accepted Auditing Standards or Generally Accepted Accounting Principles.
If an accounting professional deviates from these guidelines, it could be a breach of contract. This is because most efforts to deviate from GAAP or GAAS are intentional, and that could be considered negligence depending on the facts of the case. As a general rule, an accountant must have had a duty of care toward a client that was not maintained. Furthermore, that breach of duty must be the proximate or direct cause of harm to the client.
To prove that breach of contract occurred, it must be shown that a valid agreement existed when an action resulting in harm took place. The standard that an accountant is bound by depends on the action that he or she is taking. GAAS rules apply during an account audit that is meant to be transparent in nature. GAAP rules apply when creating financial statements.
If an accounting professional engages in fraud, it could constitute grounds for a lawsuit. This may be true if the fraudulent activity results in harm to the company. An attorney may review a case to determine if the actions taken by an accountant led directly to those damages. If so, it may be possible to obtain compensation or other forms of relief either through a formal trial or through a negotiated settlement.