St. Denis & Davey, P.A.

Legal Malpractice Issues

Understanding accounting malpractice: Conflicts of interest

| Feb 24, 2017 | Professional Malpractice Law |

While most people are already well aware that those who earn a living as attorneys, physicians, dentists or pharmacists are subject to certain rules of professional conduct as promulgated by the various states in which they practice, they might be unaware that other white-collar professionals are subject to similar regulation.

By way of example, consider certified public accountants, who must abide by the American Institute of Certified Public Accountants’ Code of Professional Conduct, a comprehensive set of rules adopted by the majority of state boards of accountancy, including Florida.

In general, the AICPA Code dictates that, among other things, all CPAs must act with objectivity, due care, integrity and competence, while never knowingly engaging in any misrepresentation of facts and always disclosing any conflicts of interest.

Regarding this latter point, the AICPA Code indicates that a conflict of interest may arise whenever a CPA provides a service for a client, and either they or their firm has an existing relationship that, if utilized in the fulfillment of this service, could compromise their objectivity.

By way of illustration, consider the following examples:

  • A CPA refers a client for whom they are providing personal financial planning or tax services to an insurance broker who, in turn, refers clients to the CPA under the terms of an exclusive arrangement
  • A CPA advises a client for whom they are providing personal financial planning services to invest in a business enterprise in which they have a financial interest

The AICPA Code dictates that when CPAs are involved in a conflict of interest or a scenario they believe could be classified as such, he or she must disclose this to the affect client and secure the necessary consent.

It’s important to understand that when an accountant fails to disclose this information and it results in a negative outcome or financial loss for a client, he or she can be held liable for accounting malpractice.

Indeed, those who believe they have been victimized by any form of malfeasance by their CPA should strongly consider speaking with a skilled legal professional who can examine their situation, explain the law and pursue the necessary solutions.