Abstract ABSTRACT: This article seeks to provide insight into the activities, decisions, and circumstances which have led to public accountant conflicts with clients and third parties, resulting in lawsuits against the public accountant. We examined 129 cases that were filed against public accountants and categorized 334 alleged errors brought by the plaintiffs. Each case was analyzed to determine the types of engagements involved, the kinds of errors that were allegedly committed, the events that led to clients or third parties initiating a search for potential errors, and the situational characteristics surrounding each case. The results indicate that: a) procedural matters are less of a problem for the public accountant than are the interpretation of accounting principles and auditing standards; b) the initiation of an error search by potential plaintiffs is motivated by signals from the client or situational characteristics of the client or client industry; c) there is an increased legal risk for public accountants in situations where they are dealing with new clients (three years or less on the engagement); d) the risk of legal problems may increase when dealing with certain industries; e) public companies appear in a disproportionate percentage of the cases analyzed; and f) a more rigid application of the conservatism doctrine may be required as none of the suits concerned errors in undervaluing assets, recognizing inadequate amounts of revenue, or recognizing excessive expenses.
Pierre et al. (Sun,) studied this question.