Accounting Malpractice

20 years of litigation
experience in Michigan

Practice Areas

Accounting Malpractice

Michigan Accounting Malpractice Lawyers

Suing for Accounting Malpractice in Michigan

Most of the time when we think of malpractice we think of doctors and hospitals, but malpractice is a broader term that applies to negligence by any licensed professional. It may be a lawyer, an accountant, an architect, or a psychologist. Other occupations involve licenses too, but that does not mean that cases against them are malpractice cases. For example, realtors, plumbers, and auto mechanics all have to be licensed but when they make mistakes, it is ordinary negligence, not malpractice.

Accountants are licensed professionals and, as a consequence, are liable for their mistakes when it is shown that they have committed malpractice – not ordinary negligence. All accounting malpractice cases have a common set of features; in order to be liable for accounting malpractice, an accountant must:

  1. Violate a standard of care or practice that accountants of ordinary skill in learning would know about and not violate.
  2. Cause the client damage as a consequence of the violation.

Mistakes that Prompt Accounting Malpractice Claims

The specific kinds of mistakes that accountants can make are too numerous to list, but they generally fall into three areas:

  1. Failure to complete tasks within legal time limits
  2. Technical mistakes
  3. Mistakes in judgment

Statutes of Limitations Against Accountants and Accounting Firms

The statute of limitations against an accountant or accounting firm is generally two years from the last date that the accountant or firm rendered services out of which the malpractice claim arises. If the two-year time period has passed, but the client had no way of knowing that the accountant had made a mistake, the time limit may be extended to six months after the client knew or could have known of a possible claim.

Sometimes clients discover the mistake on their own but the two-year time period has passed or is about to pass, and the client goes to the accountant, who in turn tries to fix the problem. The question is whether the two-year limitation on bringing suit against the accountant runs from the original representation during which the mistake was made or from the time that the accountant gave up trying to fix it. The answer is that the law ordinarily will not allow the two-year period to be extended just because the accountant tried to fix his earlier mistake. The services that ultimately gave rise to the malpractice were completed, and all the accountant was doing after that was trying to undo his or her mistake. If the claim was not brought in the original two-year period, it is probably going to be lost.

You May Have Been an Accounting Malpractice Victim

It is exceedingly difficult for a client to assess his or her own accounting malpractice claim. It may seem easier than determining whether a doctor has committed medical malpractice, but in most cases, there are complexities that the client may never appreciate.

The client may think, particularly if the accountant has been honest and fair with the client, that the accountant will admit his mistake and try to make it right without the necessity of a claim. There are two reasons why this is a dangerous assumption:

  1. When any professional is accused of malpractice, it raises personal issues that cloud otherwise good judgment. It will be exceedingly difficult for the accountant to assess and admit his or her own mistake and put a fair value on what it would take to fix it.
  2. Most malpractice insurance policies state that if the accountant does not turn the claim over to his insurance company immediately, and without doing anything that would weaken the defense of the claim, the insurance coverage will be voided. Thus, if the accountant is smart, he or she will refuse to negotiate or discuss the claim. He will simply turn the matter over to the insurance company, who will naturally attempt to get out for as small of a payment as possible.

The client should be on the lookout for any attempt by an accountant to get a client to waive in advance or release in advance any claims that the client may have against the accountant for malpractice. Quite often, particularly in the commercial context, accounting firms will attempt to limit their liability to, for example, the total amount of accounting fees paid for the year in which the mistake is made. That may be a fraction of what their mistake has cost the client.  Yet, these causes are typically enforceable, at least so long as the mistake by the accountant does not amount to gross negligence, which is very difficult to prove.

Large accounting firms will often refuse to negotiate these limitation of liability clauses out of their engagement letters. The client must decide whether this accounting firm is so worth having that a limitation of liability clause is acceptable. Most small accounting firms do not have the leverage over their clients to demand these clauses, or will negotiate them away rather than lose the business.

If you think you may have been the victim of accounting malpractice, the best advice is to seek legal counsel from a civil litigation lawyer who handles accounting malpractice claims and understands how to pursue them successfully. Because of the time limitations, it pays to move very swiftly once you begin to suspect that malpractice may have been committed.

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