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What is CPA malpractice?

People often think of malpractice as something that applies only to doctors or perhaps attorneys. While people can certainly file a claim for medical and legal malpractice, there are a number of additional professionals who can face legal action from clients for violating the standards of their profession — and possibly the law.

Whenever someone is harmed by the mistakes or negligence of these professionals, even financially, they can pursue a lawsuit. Take certified public accountants (CPAs), for example. While CPAs are typically best known for doing people’s taxes, they can also manage clients’ assets (personal and/or business), help with financial planning and more. They’re trusted to make critical decisions and, in some cases, to manage large sums of money. Therefore, a dishonest or incompetent CPA can cause significant financial harm to their clients.

What a CPA shouldn’t do

Too often, clients don’t know what is appropriate and inappropriate behavior for a CPA. There are a lot of boundaries they can’t cross. They are generally bound to adhere to the standards of their profession. Their responsibility is to their clients’ best interests. Those should never be intertwined with their own or in conflict with another client. For example, a CPA should never do the following:

  • Invest in a client’s business or join them in an investment
  • Take sides in a dispute if they’re working for both parties. That applies to business partnership disputes and divorces alike. That’s why it’s wise for divorcing couples to get their own financial and tax advisors who are there to look after only their individual interests.
  • Rely on verbal or handshake agreements. A CPA should document everything from the initial engagement letter with the client to advice and services provided to any termination agreement.

If a CPA is reluctant or refuses to provide that documentation, that’s a red flag that they may not be willing to stand by what they’ve said or agreed to if things go south.

Certainly, a CPA can’t always guarantee that their advice will pan out. Too many things about the economy are simply unpredictable. However, if someone believes a CPA has violated the ethical standards of their profession or made serious errors or omissions that have caused them financial losses, it’s certainly worthwhile to determine what legal options are available to seek justice and compensation.