Entrusting an accountant with personal or business finances can reduce a considerable amount of stress. However, it is still critical for individuals to review an accountant’s work and their finances to protect themselves against fraud or malpractice.
An accountant’s malpractice could cause serious financial damages. Knowing the signs of this malpractice can help individuals take action to safeguard their finances.
1. They do not adhere to GAAP
Every accountant must follow the government’s Generally Accepted Accounting Principles (GAAP). There are several principles accountants must adhere to, but some of the most important include:
- Meeting all standards set by the GAAP and laws
- Using consistent standards and methods for all financial reporting
- Avoiding speculation and its impacts on how they report finances
- Ensuring full disclosure in all reports
- Acting in good faith with all parties
It is helpful for individuals to review the GAAP before hiring an accountant to ensure that they follow these principles. Since these principles include so many details, disregarding the GAAP is the first—and most important—sign of malpractice.
2. They give improper advice or improperly maintain financial records
Everyone makes mistakes. However, there is not much room for mistakes when it comes to managing finances or taxes. Accountants are legally responsible for any mistakes in someone’s financial records. And since the GAAP requires all accountants to act in good faith when they advise individuals or make a financial report, consistent mistakes are another significant warning sign.
Inaccurate advice always looks different. However, it almost always leads to a loss of finances or other damages.
3. There are missing funds
Missing funds could result from multiple issues, including:
- Tax mistakes
- Third-party embezzlement
- Accountant embezzlement
Regardless of whether or not the accountant is the one embezzling money, it is still malpractice if they do not report the missing funds or if they overlook them entirely.
Being aware of these signs of malpractice can help individuals take action as soon as possible to stop malpractice and file a malpractice suit before they suffer irreversible financial damage.