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Accountants are professionals who deal with the financial affairs of their clients and therefore have strict professional responsibilities to discharge their duties at a very high standard. A client that approaches an accountant will invest a significant level of trust in that accountant’s ability to perform his duties properly.

Not infrequently, accountants may find themselves on the receiving end of a complaint or allegation that a duty has not been discharged properly by them, or that they have not conducted themselves appropriately while doing work for a client. Ordinarily, this may take the form of a claim in professional negligence.

Professional negligence is a subset of the ordinary law of negligence in that it is connected to the particular industry in which the complaint it made. For example, one kind of conduct or behaviour may be considered to be professional in one industry, but in another a different standard may be more appropriate. Claims in professional negligence therefore require a far more particular approach in assessing their prospects either in their prosecution or defence. This can involve a highly technical assessment of legal and evidentiary matters considered very closely indeed.

Due to the seriousness of the claim, establishing that an accountant acted negligently is not easy. Invariably, detailed evidence will have to be taken and it is not unusual for expert evidence to also be adduced.

However, when an allegation of professional negligence is made, the first thing that, either a defendant or a plaintiff will need to turn their attention to is the professional association of the industry. For accountants, that would be the Institute of Chartered Accountants Australia. This is the peak representative body of accountants and it regulates the profession of accounting in this country:

Representing more than 73,000 current and future professionals and business leaders, the Institute has a pivotal role in upholding financial integrity in society. Members strive to uphold the profession’s commitment to ethics and quality in everything they do, alongside an unwavering dedication to act in the public interest.” [1]

Since establishing negligence in a professional industry requires proof that a standard of acceptable practice has been violated, the initial point of call will be the industry group’s code of professional conduct. In this case, it will be the accountants’ Ethical and Professional standards as outlined by the Institute of Chartered Accountants Australia. According to the Institute:

The Chartered Accountants designation is respected world-wide. It is safeguarded through the Institute’s by-laws, standards and programs, which promote quality, and help reduce members’ operational and professional risk in the advice and services they provide.”[2]

Furthermore, the Institute’s website makes it clear that:

The Professional Conduct Section is the Institute's disciplinary arm, via its complaint and disciplinary process which enforces those standards and regulates the behaviour of its members to ensure compliance with the Institute's By-laws, Code of Ethics (the "Code"), Standards and Regulations. The complaint and disciplinary process involves investigating complaints made against members or other issues concerning their conduct, which come to the Institute's attention, e.g. as the result of court action. Where the investigation concludes that there was non-compliance by the member with the By-laws, Code of Ethics, Accounting Standards or Regulations, the sanctions are strictly limited to discipline of the member. This is either through a disciplinary hearing at the Institute's Professional Conduct Tribunal or issuing the member with a caution. The disciplinary process cannot provide any form of compensation or restitution to a complainant.” [3]

There are mechanisms available within the Institute of Chartered Accountants Australia to deal with complaints made against accountants. These complaints will be assessed against the professional standards that govern the accounting practice in Australia. The standards are drafted in consultation with the Professional Standards Council of Australia which “which require participating occupational associations to implement strategies for improving professional standards and protecting consumers.” [4] The Institute also has a Professional Conduct and Appeals Tribunal, whose decisions are published online to illustrate the manner in which disputes are resolved. [5]

Another organisation which can provide authoritative material for the professional standards required of accountants is the Certified Practicing Accountant Australia:

CPA Australia is one of the world's largest accounting bodies with a membership of more than 144,000 finance, accounting and business professionals in 127 countries across the globe. Our core services to members include education, training, technical support and advocacy. Staff and members work together with local and international bodies to represent the views and concerns of the profession to governments, regulators, industries, academia and the general public.” [6]

CPA Australia has a Code of Professional Conduct which is available on its website and according to which the duty of care expected of accountants can be measured. [7] CPA Australia also has disciplinary processes available for complaints made against accountants. These processes have been instituted so as to ensure a level of professionalism among industry professionals:

To ensure all members uphold these standards, CPA Australia has a formal process that enables complaints about its members to be heard, evaluated and, where appropriate, disciplinary action be taken. Investigations and disciplinary processes are guided by the principles of: procedural fairness (the right for a member to put forward their case), confidentiality, independence, and the right to appeal.” [8]

Similarly, the Institute of Public Accountants is the professional association for accountants who “work in public practice [...] irrespective of the sector or industry they are employed in.” [9] According to the Institute’s website, the APES 230 for Financial Planning Services (Accounting Professional & Ethical Standards Board) will commence on 1 July 2014 and be binding on members of the IPA, CPA and the Institute of Chartered Accountants. [10]

Outside of the Institute itself, complains can also be made in civil suits before a Court. This is where the litigation of professional negligence cases is traditionally filed and defended under the general principles of law; this does not mean however that the particular criteria under which negligence is assessed in the accounting industry are not relevant, they most certainly are.

New South Wales Fair Trading lists other organisations whose requirements and standards may be relevant in assessing any claim of professional negligence against accountants. [11] These include the Certified Practicing Accountants Australia (or CPA Australia) which “is a not-for-profit organisation that leads and shapes debate on issues affecting professional accountants and the wider business environment”, the Tax Practitioners Board, which “provides consumer protection to clients of tax practitioner services through a national, independent regulatory regime for tax agent services”, the Association of Chartered Certified Accountants (or ACCA) which “is a global professional accountancy body contributing expertise to achieve high accounting and business standards in Australia” and the National Institute of Accountants (or NIA) which:

is a professional accounting body representing the interests of members and other accountants in general. As a professional accounting body, the NIA has an investigation and disciplinary process to handle complaints concerning a member’s failure to abide by the NIA’s Code of Ethics.” [12]

Whether an individual is a person who wants to make a complaint against an accountant, or whether that individual is an accountant against whom a complaint it made, these procedures and principles of law will govern the manner in which the matter will be prosecuted and resolved. For economic reasons, it may be preferable to reach a negotiated settlement for complaints in professional negligence involving accountants, however sometimes this is not possible or even likely.

One common problem that accounts who are facing legal proceedings may experience is their insurer’s reluctant to indemnify them against claims. This often involves a question of conduct which is alleged to fall under one of the exclusions which the insurer claims disqualifies the accountant from being covered by the indemnity under the insurance policy. Whether or not the insurer is correct to refuse cover on the basis of an exclusion will necessarily involve first ascertaining whether or not the conditions for the exclusion have been met.

In any event, legal advice will often be essential to ensure that the right strategy is employed in any case where an accountant is being sued, or where an individual may wish to seek legal remedy against an account for professional negligence.

If you need professional legal advice and assistance in relation to a negligence claim against an accountant, you may wish to contact our firm by telelphone on (02) 9233 4048 or email us at info@navado.com.au and make an appointment to see one of our solicitors.

 

[1] “Who we are and what we do”, Institute of Chartered Accountants Australia website (updated 11 June 2013) <www.charteredaccountants.com.au> (accessed 14 October 2013).

[2] “Ethical & professional standards” Ibid (undated, accessed 14 October 2013).

[3] “Professional conduct” Ibid (updated 28 June 2011, accessed 14 October 2013).

[4] “Welcome to the Professional Standards Council website” Professional Standards Council website (undated) <www.psc.gov.au> (accessed 14 October 2013).

[5] “Tribunal decisions” Institute of Chartered Accountants Australia website (undated) <www.charteredaccountants.com.au> (accessed 14 October 2013).

[6] “About us” CPA Australia website (undated) <www.cpaaustralia.com.au> (accessed 14 October 2013).

[7] Complied APES 110 Code of Ethics: Professional Accountants (Accounting Professional & Ethical Standards Board, December 2011) available at CPA Australia’s website at <www.cpaaustralia.com.au> (accessed 14 October 2013).

[8] “Member conduct & discipline” CPA Australia website (undated) <www.cpaaustralia.com.au> (accessed 14 October 2013).

[9] “What is a public accountant?” Institute of Public Accountants website (undated) <http://www.publicaccountants.org.au> (accessed 14 October 2013).

[10] “APES 230 FAQ” (Institute of Public Accountants, February 2013) pp 1-2, available at Institute of Public Accountants’ website at <http://www.publicaccountants.org.au> (accessed 14 October 2013).

[11] “Accountants and Tax Agents” New South Wales Government: Fair Trading (updated 11 May 2012) <www.fairtrading.nsw.gov.au> (accessed 14 October 2013).

[12] Ibid.

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