What Is Accounting Malpractice and What Can You Do About It?

For businesses and individuals alike, accounting professionals play a critical role in managing finances, ensuring tax compliance, and providing financial guidance.
But what happens when those trusted professionals make serious mistakes?
That’s where an accounting malpractice lawyer can help.
If you've suffered financial loss due to a negligent accountant, you may have legal options and may be entitled to compensation. At Morgan & Morgan, our attorneys understand the complexities of malpractice claims and are ready to fight for the justice and compensation you deserve.
Contact us today for a free case evaluation to learn more.
What Is Accounting Malpractice?
Accounting malpractice occurs when an Accountant, Certified Public Accountant (CPA), or other financial professional fails to perform their duties in accordance with the standards of the accounting profession, resulting in harm to a client.
Much like legal or medical malpractice, the core issue is professional negligence. That means the accountant failed to exercise the level of skill, care, and diligence that a reasonably competent professional would under similar circumstances.
However, malpractice isn't limited to simple negligence. It can also include breaches of fiduciary duty or related claims.
The Duty of Care in Accounting
Accountants have a legal duty to act in the best interests of their clients. This duty includes:
- Preparing accurate financial records
- Ensuring compliance with tax laws and financial regulations
- Offering correct financial advice
- Keeping client information confidential
- Avoiding conflicts of interest
- Following professional standards (e.g., GAAP – Generally Accepted Accounting Principles)
When accountants violate this duty and their actions cause financial harm, they may be liable for malpractice.
Common Types of Accounting Malpractice
Accounting malpractice can take many forms. Here are some of the most common:
Failure to File or Late Filing
Failing to submit required tax forms or documents on time can have severe consequences. If your accountant’s delay caused your business to face late fees, penalties, or loss of a license, you could be entitled to damages.
Negligent Tax Preparation or Filing
Failing to timely file tax documents or incorrectly preparing tax returns, whether through arithmetic errors, misclassifying income, or overlooking important items, can lead to audits, penalties, or investigations. If your accountant’s negligence led to IRS fines or other tax consequences, you may have a case.
Failure to Detect Fraud
Accountants are often responsible for auditing company finances and should be on the lookout for signs of fraud. If an accountant misses or ignores clear red flags, they may be held liable for failing to uncover fraudulent activity within a business.
Financial Misstatements
Whether intentional or due to incompetence, misstated financial reports can seriously harm businesses and investors. If an accountant prepares reports with significant errors that affect business decisions, that can be malpractice.
Conflict of Interest
An accountant has a duty to avoid situations where their own interests conflict with those of the client. For example, recommending a third-party service or investment where they have a hidden financial interest may constitute malpractice.
Breach of Fiduciary Duty
A fiduciary duty is the highest standard of care, and accountants often owe this to their clients. When they fail to act in good faith or prioritize their own benefit over the client’s, they may be liable for breach of fiduciary duty.
Improper Valuations
Accountants who perform business or asset valuations must do so with precision. Inflated or understated valuations can damage business negotiations, sales, and mergers.
Proving an Accounting Malpractice Case
To succeed in a lawsuit for accounting malpractice, you generally need to prove the following elements:
1. Duty
You must show that the accountant owed you a duty of care. This is typically established through a contractual or professional relationship.
2. Breach
You must prove that the accountant breached their duty by failing to meet the professional standard of care. For example, the standard of care was not met by failing to file tax returns on time or overlooking major accounting errors.
3. Causation
You must demonstrate that the breach of duty directly caused you harm. It’s not enough that a mistake happened; it must have led to actual economic damages.
4. Damages
You must have suffered quantifiable damages, such as financial losses, tax penalties, legal fees, or lost business opportunities.
Potential Damages in an Accounting Malpractice Lawsuit
If you win an accounting malpractice case, you may be entitled to various types of compensation, including:
- Direct financial losses due to errors or fraud
- Penalties and interest paid to tax authorities
- Legal fees incurred in correcting mistakes
- Lost business opportunities
- Consequential damages, such as reputational harm
- In some cases, punitive damages if the accountant acted with fraud or gross negligence
Statute of Limitations for Accounting Malpractice
Each state sets its own statute of limitations for malpractice claims, which generally range from 1 to 4 years from the date the malpractice occurred or from when it was discovered.
However, determining the start date can be complicated, especially if the malpractice wasn’t immediately obvious. For example, you might not realize a tax filing error occurred until years later. In some states, this may trigger a “discovery rule” that tolls (pauses) the statute of limitations.
If you suspect malpractice, it’s crucial to speak with an attorney as soon as possible to preserve your legal rights.
What Should I Do if I Suspect Accounting Malpractice?
If you believe your accountant has made a serious error or acted unethically, here are some steps to take:
1. Act Quickly
Due to the statute of limitations, delaying your claim could mean losing your right to compensation. The sooner you act, the better your chances.
2. Consult an Attorney
An experienced malpractice attorney can evaluate your case, help you determine whether you have a valid claim, and advise you on the next steps.
3. Collect Documentation
Gather all relevant tax returns, financial statements, email correspondence, contracts, and any notices from the IRS or other agencies.
4. Speak With a Financial Expert
Before jumping into legal action, it can be helpful to have another accountant or forensic expert review your financial records to verify if malpractice occurred.
Can I Sue My CPA for Filing Errors?
Yes. If your CPA made mistakes that led to penalties, financial losses, or legal trouble, you may have a claim for malpractice.
How Morgan & Morgan Can Help
Accounting malpractice can have far-reaching consequences, from IRS investigations to business collapses, but you don’t have to suffer the fallout alone. Whether the issue stems from a careless mistake or deliberate misconduct, you may be entitled to compensation for your losses.
At Morgan & Morgan, we believe no one is above accountability. That includes accountants and financial professionals who fail to uphold their responsibilities.
If an accountant’s negligence or misconduct has harmed you, contact us today for a free, confidential case evaluation. We’re here to help you seek justice and fight for the compensation you deserve.
When you work with us, we will evaluate your case, review financial records and accounting documentation, and consult financial and forensic experts to uncover errors or misconduct.
Our legal team can negotiate with accounting firms or insurers and pursue litigation aggressively if necessary.
We’ve recovered billions for clients nationwide, and we’re not afraid to go up against large firms or insurers. Best of all, we work on a contingency fee basis, and you don’t pay us a dime unless we win.
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