Having procedures in place to supervise less experienced staff must be an essential part of this process. It is ironic that accounting firms have comprehensive quality control policies targeting more complex and financially significant matters but that the more apparently ‘routine’ matters can cause the biggest problems.
Duty of care
Most accountants are familiar with their obligation to clients under professional negligence law. This requires accountants, who owe a duty of care to their clients and to some third parties, to exercise reasonable care and skill in discharging their duties.
But accountants are exposed to liability in a number of other areas. Two areas that are less often focused on are breach of client contract and potential disciplinary action that can arise when forms are not filled in correctly.
Breach of contract
One matter that came before the courts concerned accountants miscalculating the amount of depreciation allowable as a deduction. The mistake was carried through in succeeding years. The error resulted in an overstatement of the tax payable, and no refund could be obtained of taxes overpaid in three financial years because they were statute barred. The client successfully sued the accountants, who were subsequently found not only to have been negligent but also to have been in breach of their contract, with significant claims for damages awarded.
In another case, a client provided a handwritten, partially completed insurance proposal form, which needed to be submitted to the insurance company. It was later submitted via an online template.
In undertaking this task and providing answers in all the required fields, unfortunately the employee who filled in the form inadvertently failed to notice and note that the client had been declined by a number of other insurers in the previous two years. A subsequent investigation revealed this fact and, instead of being paid out by the insurer, the client found himself being pursued by it for money he had already received, on the grounds of material non-disclosure and fraud. In turn, he took steps to recover the losses suffered from his advisers for negligence, breach of contract and potentially misleading and deceptive conduct, because of the way his proposal form had been dealt with.
In accepting responsibility for filling in routine forms, whether it is a tax return, insurance proposal/claim or similar documents, the same principle applies. Accountants are exposing themselves to legal risks that go further than negligence and may include breach of contract and arguably misleading and deceptive conduct under Australian Consumer Law.
Disciplinary action
It’s not only the legal process that you need to be mindful of. Quality control breakdowns also come to the attention of the accounting professional bodies. Quite apart from the reputational damage of being brought before a disciplinary committee, accountants found lacking can also be fined and ordered to attend training programs.
Another form of regulatory exposure arises from cases of aiding or participating in activities by clients that amount to offences under legislation, such as the Tax Act or Superannuation Act, or even, in cases such as theft or fraud, the Criminal Code of the state in which the accountants practise.
In summary
While most accountants are aware of their duty of care obligations to avoid claims of professional negligence, remember that your exposure to legal or disciplinary action doesn’t always arise from the most complex or financially sophisticated aspects of your work. Proper quality control processes are critical to ensure that routine form filling doesn’t ‘go legal’.
