An Accountant’s Liability for the Client’s Mistakes

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On the face of it, an accountant is liable for the mistakes he or she makes in his “statements”. In fact, a customer that hires an accountant to carry out an audit is no more responsible for verifying the data that will be included in the final report as this duty is naturally transposed to the employed accountant. In the meantime, the question arises regarding an accountant’s responsibility for those mistakes that a customer makes intentionally. In other words, it is unclear whether an accountant should be responsible for the data corruption that is carefully concealed by the client. Therefore, in order to identify those cases when an accountant is liable for a customer’s mistake, it is essential to define the kind of mistakes that might be overlooked.

Thus, presumably, an accountant is engaged in order to perform an audit. The company’s financial reports contain a series of unintended mistakes of which the customers are not aware. Otherwise stated, the company does not make any extra effort to conceal the mistakes. The accountant overlooks the mistakes and prepares the relevant report that is further used by the third party. The latter suffers some financial loss due to the fact that it was misled by the wrong information. In this case, the accountant is liable for neglecting the mistakes in accordance with the so-called foreseeability standard (Cheeseman 742). If the third party demands a refund, it is most probable that the court grants a judgment to the plaintiff. In the meantime, an accountant is liable for the mistake only on the condition that this mistake has led to some negative consequences for another party. Otherwise, there is no such law or regulation in the framework of which professional negligence is legally punished.

Thence, it is critical to realize that the customer’s mistake that is neglected by an accountant can be characterized as negligence. According to Section 11(a) of the Securities Act of 1933, an accountant is liable for any omission or misstatements he or she provides in the reports (Cheeseman 743).

However, it is essential to examine another scenario as well. Assuming that the customer’s mistake is not unintended but refers to the fraudulent activity that is carefully concealed, an accountant might be intentionally misled. At this point, it is critical to determine whether an accountant’s overlooking the mistake is intentional conduct or common negligence. In case an accountant does not perceive the client’s mistake on purpose, being somehow engaged in the fraud activity, the US Supreme Court will essentially accuse him or her of violating Section 10(b) of the Securities Exchange Act of 1934 (Cheeseman 745). Although if his or her neglect of the client’s mistake proves to be accidental, no legal punishment can be applied.

In addition, it is necessary to add that the relationships between a client and an accountant are legally regulated by the relevant contract. Thus, an accountant’s liability for the client’s mistakes depends largely on the way this point is elucidated in the contract. In other words, an accountant that wants to avoid being responsible for a client’s mistakes should essentially insist on including the relevant condition in the contract.

In conclusion, it should be noted that, in most cases, an accountant is liable for the mistakes he or she makes notwithstanding the fact whether it is their own fault or the customer’s negligence.

Works Cited

Cheeseman, Henry. Contemporary Business Law, Upper Saddle River, New Jersey: Pearson, 2015. Print.

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