Contributory negligence is a common law defense where a person through his/her own negligence, contributes to the harm s/he suffered. Contributory negligence of the client can be regarded as a defense to the liability of the accountant for malpractice. However, it has to be proved that the negligence of the client has proximately contributed to the accountant’s failure to perform[i].
The doctrine of collateral estoppel restricts a client from denying contributory negligence as a defense to a claim of negligence or gross negligence against an accountant. The doctrine of collateral estoppel is a doctrine which prevents re litigation of an issue in a later action, although the case of action is different[ii].
In National Surety Corp. v. Lybrand, 256 A.D. 226, 9 N.Y.S.2d 554 (1939), an auditor was sued for accounting malpractice on the basis that he failed to detect and report that an officer of the corporation was embezzling funds. The trial court dismissed the complaint based upon the contributory negligence of the corporation. The appellate court reversed, enunciating the “audit inference” rule. The court observed that accountants are not immune from the consequences of their own negligence because their employers have conducted the business negligently.
In Shapiro v Glekel (1974, DC NY) 380 F Supp 1053, the court dealt with question of an accounting firm’s liability. The accounting firm failed to detect and report inaccuracies in certain financial statements during the course of a corporate audit. The court observed the fact that the knowledge of the financial condition of the corporation by president and board chairman of the corporation will not constitute contributory negligence precluding the accountant’s liability as a matter of law. It was added that the accountants cannot be allowed to avoid liability resulting from their own negligence except upon a showing of substantial negligence or fault by their employer.
However, if the doctrine of contributory negligence is repudiated, an accounting firm is entitled to assert the defense of comparative negligence in a malpractice action instituted against the firm by a client[iii].
[i] National Surety Corp. v. Lybrand, 256 A.D. 226 (N.Y. App. Div. 1939)
[ii] Columbia Med. Group, Inc. v. Herring & Roll, P.C., 2003 PA Super 272 (Pa. Super. Ct. 2003)
[iii] Devco Premium Finance Co. v. North River Ins. Co., 450 So. 2d 1216, 1220 (Fla. Dist. Ct. App. 1st Dist. 1984)