NSA Travelers Claim Study

NSA’s insurance partner, Forrest T. Jones, passed along this professional liability claim study for accountants and tax pros. -Editor

Failure to Document and Perform Due Diligence

An accountant was asked by his client to review an audited financial statement to provide an opinion whether there was adequate collateral to secure an investment in a company. The accountant spent less than two hours reviewing the document for a multi-million-dollar investment. The accountant did not seek any additional information, nor did he seek to speak with anyone regarding the financial information. The accountant did not prepare a written report and, in fact, did not create a file documenting his work. The accountant also did not ask his client to sign a retention agreement.

Later, the client lost his investment because the company for which the audit had been prepared went bankrupt. The accountant was brought into the ensuing litigation on a theory that he breached the standard of care because he did not identify issues in the audited financial statement and he did not seek more information. The parties disputed the scope of the accountant’s engagement

and whether he should have sought additional information, particularly in view of the fact that there was a qualification contained in the audit of the financial statement. The accountant argued that his scope was limited to a review of the audited financial statement for the sole purpose of verifying that the company had adequate collateral to secure the investment. The accountant maintained that he was not hired to provide a…

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