Jan 30th, 2024

FKB’s Rachel Aghassi And Christopher D. Skoczen Prevail Against Plaintiff’s Appeal Of Dismissal Of Accounting Malpractice Claim And Clarify Law Regarding Accountants’ Scope Of Duty In Review Engagements

FKB’s Rachel Aghassi and Christopher D. Skoczen successfully opposed the appeal of the appellant, a textile company, seeking to overturn the Supreme Court’s order and reinstate accounting malpractice and breach of contract claims against FKB’s client.  The Appellate Division, First Department denied the appeal and affirmed the order of dismissal. 

Appellant argued that the review engagement conducted by FKB’s client, an accounting firm, required the firm to identify and disclose Appellant’s errors in its management of the company.  Appellant argued further that FKB’s client failed to conduct the review engagement in a proper manner and apply appropriate analytic procedures, based on Appellant’s discovery of purported business losses.  The Appellate Division agreed with FKB that an accountant’s review engagement is limited to reviewing financial statements prepared by the client, and that a review engagement does not impose a duty on an accountant to discover issues with its client’s finances.  As such, the Appellate Division held that there were clear distinctions between a review engagement and an audit engagement, as FKB had advocated.  The Appellate Division also agreed with FKB that Appellant’s complaint relied on conclusory allegations of a failure to perform certain procedures, without identifying the procedures or what the procedures may have uncovered.  The Appellate Division also held that Appellant’s breach of contract action must be dismissed as redundant of the accounting malpractice cause of action.

If you have any questions about this decision, or the defense of accountants in general, please contact Rachel Aghassi or Christopher D. Skoczen