Accounting Malpractice in Illinois
Accounting malpractice occurs when an accountant commits an error that causes a negative outcome or monetary loss for the client.
Accountants are required to adhere to standards called Generally Accepted Accounting Principles, or GAAP, when preparing financial statements for a business, such as a balance sheet and income statement. Accountants are also required to adhere to the Tax Code when preparing tax returns for individuals and businesses.
When an accountant commits an error, omission or deviation from these standards and it has a negative effect on the client, it is accounting malpractice.
Simple negligence is when an accountant makes a mistake that a reasonable accountant would not have made. Gross negligence is when an accountant knowingly deviates from the required standards.
In order to have a valid accounting malpractice claim, it is not enough that the accountant was negligent, either simple or gross. Rather, there must be a cause and effect relationship between the accountant’s negligence and the damage caused to the client.
The costs involved in litigating an accounting malpractice claim can be extremely high. The facts in such cases are often complicated, resulting in increased attorneys’ fees as well as increased expenses if, for example, accounting experts are required.
That is why it is not always cost effective to pursue an accounting malpractice claim. For example, if an accountant makes a mistake resulting in an additional $1,000 owed to the IRS but it costs $1,500 in attorneys’ fees and other expenses to litigate the matter, it is not worth pursuing.
However, if an accountant makes a mistake resulting in an additional $200,000 in costs to reissue financial statements, an accounting malpractice claim may be worth pursuing. Of course, it may still depend on how complicated the mistake was and, therefore, how costly attorneys’ fees and expenses will be.
In some instances, where the facts strongly point to negligence and the damages are high enough, an attorney may litigate the matter on a contingency basis. This means that the attorney will not get paid by the hour but rather take a percentage of whatever is recovered. Again, this is likely to occur only in certain cases where a significant amount of money is at stake. If they don’t recover anything you owe nothing. If they do recover they usually receive 1/3 of what they get for you.
In Illinois, the statute of limitations for a professional malpractice claim is typically two years from the date of the act that gave rise to the malpractice or from when you reasonably should have known it occurred.