Accountant and Auditor Malpractice

Questions about an accountant’s or auditor’s performance may arise when financial statements are later found to be materially misstated, when fraud or misappropriation goes undetected despite an audit or review, when a lender or other third party relies on financial statements that do not accurately reflect an entity’s financial condition, or when a tax return or advisory engagement results in unexpected liabilities, penalties, or other financial harm.

The nature and scope of the analysis depend on the type of engagement at issue, the applicable professional standards, and the specific conduct or work product being questioned.

Accountant and auditor malpractice matters can arise across a range of engagements and professional services. Examples of the types of matters we support include the following.

• Audit Failures to Detect Fraud or Misstatement
• GAAP Departures in Financial Statement Preparation
• Compilation and Review Engagement Failures
• Auditor Independence and Conflict-of-Interest Issues
• Tax Return Preparation and Advisory Malpractice
• Going Concern and Disclosure Failures
• Third-Party Reliance Claims

Claims may arise when a financial statement audit failed to detect a material misstatement or fraud that was later discovered, often after significant financial harm has occurred to investors, lenders, or the business itself.

Our analysis may include reviewing the auditor’s work papers, audit programs, and risk assessments to evaluate whether the audit was planned and performed in accordance with GAAS, including the auditor’s procedures for assessing and responding to the risk of material misstatement due to fraud or error.

We evaluate whether the audit evidence obtained was sufficient and appropriate to support the auditor’s opinion, and whether the auditor’s procedures were reasonably designed to detect the type of misstatement or fraud at issue, given the facts known or knowable at the time of the audit.

Counsel and the trier of fact determine whether the auditor’s conduct fell below the applicable standard of care and whether that conduct caused the claimed damages; our role is to evaluate the auditor’s work against the applicable professional standards and provide the financial analysis relevant to those determinations.

Disputes may arise over whether financial statements were prepared in accordance with GAAP, including the recognition, measurement, presentation, or disclosure of specific transactions or account balances.

Our analysis may include reviewing the accounting policies and methodologies applied to specific transactions, such as revenue recognition, asset valuation, impairment, consolidation, or related-party transactions, and comparing those policies to the applicable accounting standards.

Where a departure from GAAP is identified, we evaluate whether the departure was material, individually or in the aggregate, and quantify its effect on the financial statements or other financial metrics at issue.

We do not make legal determinations regarding negligence or liability. Where those issues are relevant to the matter, we provide the financial analysis necessary for counsel and other appropriate parties to evaluate them.

Claims may also involve compilation or review engagements, which are subject to different professional standards and a different level of assurance than an audit.

Our analysis may include evaluating whether the accountant complied with the applicable standards for the engagement performed, such as the Statements on Standards for Accounting and Review Services (SSARS), including the procedures required for a review engagement and the representations required for a compilation.

We consider the scope of the engagement letter and the level of service actually contracted for, since the procedures and assurance expected of a compilation, review, or audit differ significantly under applicable professional standards.

Our role is to evaluate the work performed against the standards applicable to the specific engagement and to provide the financial analysis relevant to counsel’s evaluation of the claims.

Questions may arise about whether an auditor maintained independence from an audit client, in fact or in appearance, particularly where the auditor or firm provided other services to the client or had a financial or business relationship with it.

Our analysis may include reviewing the auditor’s independence policies, the nature and scope of non-audit services provided, fee arrangements, and other relationships between the auditor and the client relevant to independence requirements under applicable professional standards.

We evaluate the facts against the applicable independence rules and standards and assess the financial significance of any non-audit services, fees, or relationships identified.

Whether an independence impairment affected the reliability of the audit opinion or gives rise to liability is determined by counsel and the trier of fact; our role is to analyze the facts against the applicable standards.

Claims may arise from alleged errors in tax return preparation or tax advisory services, including the treatment of specific transactions, elections, or positions taken on a return.

Our analysis may include reviewing the tax returns, supporting workpapers, and underlying financial records, and evaluating whether the position taken was reasonable based on the information available to the preparer at the time.

Where a claimed error resulted in penalties, interest, additional tax liability, or other financial harm, we quantify the amounts involved and evaluate the extent to which they are attributable to the alleged error, as opposed to other factors.

Our role is to provide the financial analysis relevant to the claimed error and its effects; the applicable standard of care for tax preparers and advisors is addressed by counsel and, where applicable, by expert testimony on professional standards.

Claims may arise when an auditor did not identify or report substantial doubt about an entity’s ability to continue as a going concern, or when required financial statement disclosures were omitted or inadequate.

Our analysis may include reviewing the financial information available to the auditor at the time of the engagement, including cash flow projections, financing arrangements, and other conditions relevant to a going-concern evaluation under the applicable auditing standards.

We evaluate whether the disclosures made, or not made, were consistent with the financial condition reflected in the underlying records, and quantify the financial effect of the alleged omission or inadequate disclosure where relevant.

Our role is to analyze the financial information and the applicable disclosure and reporting standards; determinations regarding the reasonableness of the auditor’s judgment and any resulting liability are made by counsel and the trier of fact.

Lenders, investors, and other third parties may bring claims alleging that they relied on inaccurate or misleading financial statements or an auditor’s opinion in making a lending, investment, or other financial decision.

Our analysis may include reviewing the financial statements and audit or review reports at issue, evaluating whether the financial information was consistent with the entity’s underlying financial condition, and identifying any departures from applicable accounting or auditing standards.

We may also evaluate the financial information available to the third party at the time of its decision and quantify the effect of any identified misstatement or departure on the financial metrics the third party states it relied upon.

Questions of reliance, causation, and legal duty owed to a third party are determined by counsel and the trier of fact; our role is to provide the financial and standards-based analysis relevant to those determinations.

The specific procedures applied in each matter depend on the type of engagement at issue, the applicable professional standards, and the available engagement files and financial records.

We may examine engagement files, work papers, correspondence, engagement letters, financial statements, and other records prepared or relied upon by the accountant or auditor, together with the underlying financial records of the entity involved.

We compare the work performed to the requirements of the applicable professional standards, including GAAP, GAAS, SSARS, and other standards issued by the American Institute of Certified Public Accountants (AICPA), the Public Company Accounting Oversight Board (PCAOB), or other applicable standard-setting or regulatory bodies, and identify departures from those standards and their financial implications.

Depending on the engagement, our analysis may include:

• Reviewing audit, review, or compilation work papers and engagement files
• Evaluating compliance with GAAP, GAAS, SSARS, or other applicable professional standards
• Assessing the sufficiency and appropriateness of audit evidence obtained
• Evaluating auditor independence and conflict-of-interest considerations
• Quantifying the financial effect of identified departures from professional standards
• Comparing engagement scope and procedures to the applicable engagement letter and professional requirements

These procedures can help identify departures from applicable professional standards and quantify their financial effects relevant to the engagement.

We identify and explain the findings resulting from our analysis, including the professional standards applicable to the engagement, any departures identified, and the financial implications of those departures.

We do not make legal determinations regarding negligence, breach of the standard of care, causation, or liability. Where those issues are relevant to the matter, we provide the professional-standards and financial analysis necessary for counsel and other appropriate parties to evaluate them.

Accountant and auditor malpractice matters often intersect with broader forensic accounting issues, particularly where the underlying dispute involves tracing funds, reconciling financial records, or quantifying the financial harm resulting from an alleged departure from professional standards.

Where the matter also involves broader forensic accounting or business valuation issues, see our Forensic Accounting Services and Business Valuation Services.