Accountant and Auditor Malpractice

Los Angeles accountant malpractice attorneys at Mark Anchor Albert and Associates have successfully prosecuted and defended accounting and auditor malpractice cases collectively involving hundreds of millions of dollars. They have strong financial and economic backgrounds and are fluent in the language of accountancy and finance. They are adept at reading and understanding financial statements and other accounting and auditing documents of every type.

Accountants and auditors are professionals who are subject to standards of care and rules of professional conduct that they are required to satisfy when representing their clients. Accounting or auditor malpractice occurs when an auditor or other accounting professional fails to follow those professional standards and rules and deviates from GAAP—Generally Accepted Accounting Principles or from GAAS—Generally Accepted Auditing Standards.

Thus, when conducting audits of a company’s financial statements, an auditor must abide by professional standards of auditing in GAAS in order to express an opinion on the fair presentation of the financial condition of company in accordance with GAAP.

With respect to audits in particular, there are ten (10) generally accepted auditing standards which are categorized into three categories of standards, as follows:

General Standards

  • The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor;

  • In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors; and

  • Due professional care is to be exercised in the performance of the audit and the preparation of the report.

Standards of Field Work

  • The work is to be adequately planned and assistants, if any, are to be properly supervised;

  • A sufficient understanding of the internal control structure is to be obtained to plan the audit and to determine the nature, timing, and extent of tests to be performed; and

  • Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmation to afford a reasonable basis for an opinion regarding the financial statements under audit.

Standards of Reporting

  • The report shall state whether the financial statements are presented in accordance with generally accepted accounting principles;

  • The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period;

  • Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report; and

  • The report shall either contain an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be expressed, the reasons therefore should be stated. In all cases where an auditor’s name is associated with financial statements, the report should contain a clear-cut indication of the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking.

Los Angeles litigation lawyers Mark Anchor Albert and Associates have substantial experience both prosecuting and defending auditor and accounting malpractice cases alleging violations of each of the ten generally accepted auditing standards, and specifically:

Violations of the General Standards, including:

  • AU Section 210 - Training and Proficiency of the Independent Auditor

  • AU Section 220 - Independence

  • AU Section 230 - Due Professional Care in the Performance of Work

Violations of the Standards of Field Work, including:

  • AU Section 316 - Financial Statement Fraud Detection

  • AU Section 329 - Analytical Procedures

  • AU Section 333 - Management Representations

Violations of the Standards of Reporting, including:

  • AU Section 410 - Adherence to Generally Accepted Accounting Principles

Mark Anchor Albert and Associates also has substantial experience and expertise handling financial fraud cases involving deliberate and negligent misstatements and omissions of amounts or disclosures of financial statements that were intended to or had the result of deceiving financial statement users, particularly investors and creditors. These cases have involved various forms of financial manipulation of corporate financial statements, whether the balance sheet, the statement of income or statement of operations, the statement of retained earnings, the statement of cash flows, or the statement of changes in owner’s equity. Examples of such financial statement fraud have included:

  • Falsification, alteration, or manipulation of material financial records, supporting documents, or business transactions;

  • Material intentional omissions or misrepresentations of events, transactions, accounts, or other significant information from which financial statements are prepared;

  • Deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report, and disclose economic events and business transactions; and

  • Intentional omissions of disclosures or presentation of inadequate disclosures regarding accounting principles and policies and related financial amounts.

These manipulations often are designed either to inflate or record fictitious revenues, to report improper asset valuations, to conceal, minimize or underreport liabilities and expenses, or understate or mislead readers of the financial statements about material conditions or trends impacting the business’s bottom line or future prospects.

Examples of representative accounting and auditing malpractice cases in which lawyers at Mark Anchor Albert and Associates have been involved include the following:

In re Protron Digital Corp. Accounting Malpractice Litigation

By appointment by the U.S. Bankruptcy Court as Special Litigation Counsel, advised the Secured Creditors’ Committee of Ya Hsin Industrial Co., Ltd. regarding the existence, viability, and advisability of pursuing claims for professional negligence, breach of fiduciary duty, breach of contract, aiding and abetting breach of fiduciary duty, and conspiracy to commit fraudulent and preferential transfers against the debtor corporation’s former auditors and accountants, involving over $116 million in alleged losses.

In re Arthur Anderson LLP Audit Malpractice Litigation

Represented Bergen Brunswig Corporation, now known as AmeriSourceBergen (NYSE Ticker: ABC), in an action against Arthur Anderson LLP, then a “Big 5” accounting firm, alleging auditor malpractice in connection with the company’s acquisition of a specialty drug distribution company (Standlander Drug Co., Inc.), and over $3 billion in claimed damages. Managing a forensic accountant team, we uncovered substantial evidence of grossly understated bad debt reserves and failures to properly account for customer returns and allowances that resulted in a nine figure overvaluation of the company that the auditors should have uncovered pre-acquisition. These efforts resulted in a large confidential settlement.

In re KPMG Accounting Malpractice Litigation

Prior to subsequent representation of KPMG, negotiated a $6.3 million settlement from KPMG for erroneous financial statements KPMG had prepared. The client was a major California bank that relied on the faulty financial statements in extending credit to an entity that collapsed when the fraudulent nature of that enterprise came to light. The terms of the settlement and identity of the client are confidential.

In re Deloitte & Touche LLP Auditor Malpractice Litigation

Secured a $8.9 million settlement from Deloitte & Touche LLP for its failure to disclose inventory and other problems in financial statements it audited. The specific terms of the settlement agreement are confidential.

In re Deloitte LLP Auditor and Consulting Malpractice Litigation

Advised the General Counsel and the Board of Directors of a publicly-traded Fortune 50 company regarding potential auditor malpractice and related consulting negligence claims against Deloitte Touche LLP regarding their accounting and financial consulting services in connection with the acquisition of a subsidiary whose books were “cooked,” involving claimed damages of over $100 million.

In re Orange County KPMG Auditor Malpractice Litigation

Primary responsibility for defense of KPMG Peat Marwick and its partners in several related state and federal lawsuits arising from the Orange County bankruptcy, seeking collectively more than $3 billion in damages from our clients. Drafted successful appellate opposition brief regarding venue transfer order based upon adverse pre-trial publicity. Prepared critical motions, including motions to transfer venue due to prejudicial post-trial publicity, and motions for summary judgment and summary adjudication, as well as important discovery motions. Assisted in defense of motion for proposed international defendant class action of KPMG partners worldwide. Achieved with team a favorable nationwide class settlement before trial.

In re OCTA/KPMG Auditor Malpractice Litigation

Team leader in the defense of KPMG’s audit of the Orange County Transportation Authority with respect to pension plan and related investment losses totaling hundreds of millions of dollars. Succeeded in dismissing key claims and successfully defended the trial court’s ruling on appeal, leading to a deeply discounted, confidential settlement.

In re OCWD/KPMG Auditor Malpractice Litigation

Team leader in the defense of KPMG’s audit of the Orange County Water District in the face of tens of millions of dollars in claims alleging accounting and auditor malpractice. Took and defended dozens of key depositions, including the Managing Director of plaintiff Orange County Water District, key internal auditing and accounting professionals, and outside financial advisors. Defeated several motions and achieved favorable settlement on the eve of trial while summary judgment and adjudication motions were pending.

In re City of Orange/KPMG Auditor Malpractice Litigation

Team leader in the defense of KPMG’s audit of the City of Orange alleging professional negligence in the audit of the City’s investment and pension accounts. Took key depositions and drafted critical procedural and substantive motions resulting in a favorable resolution for the client at the summary judgment stage pre-trial.