Professional Negligence/Audit Malpractice

An accounting firm was engaged to audit the financial statements of a software company. Even though the software company still owed the firm significant fees from prior accounting work, the accounting firm took on the new project. The company’s CEO, knowing of a defect in a software product, allowed it to be shipped in mass quantities just prior to the close of the fiscal year. The firm’s audit team, unaware of the defect within the shipped product, provided a “clean” opinion.

One of the software company’s lenders sued the accounting firm claiming reliance on the audited financials. Although an “unclean hands” defense was proffered, the past due fees owed at the time of the audit led some to question the firm’s independence. After lengthy litigation, the case settled for a six-figure sum.

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