Thomas J. Shroyer, Attorney

Accountant Liability Defense and Trial Defense

Accountants may face a multitude of liability and professional negligence claims. Below is a partial list of some of the claims Tom Shroyer has defended and managed for accountants.  

Accountant Liability Defense

“Failed Audit” Cases

  • Failure to detect employee defalcation
  • Failure to detect falsely reported sales
  • Failure to audit related party
  • Failure to properly test inventory
  • Failure to properly test work in progress, for estimating current portion of future profits of construction company
  • Failure to perform cash cutoff test
  • Failure to detect futures contracts speculation by grain elevator management
  • Lack of “going concern” opinion
  • Failure to detect falsification of “account current” by insurance agency
  • Improper accounting for revenue on related-party lease

Review of Financial Statements

  • Failure to apply analytical procedures
  • Expressing review opinion, after performing audit
  • Failure to detect employee defalcation
  • Failure to disclaim or qualify opinion, despite knowledge of irregularity in client-supplied financial information
  • Failure to complete engagement in timely fashion, resulting in loss of construction company bonding
  • Issuing review opinions, based only upon compilation

Compilation of Financial Statements

  • Overstatement of WIP for a construction company, following conversion from cash to accrual method
  • Failure to detect employee defalcation
  • Failure to complete compilation engagement in timely fashion

Tax Advice and Tax Return Preparation

  • Abusive tax shelters
  • Untimely filing of tax return
  • Numerous failures to properly advise clients on the formation, financing, and liquidation of S corporations
  • Failure to advise client to properly structure employee stock option
  • Failure to advise client to allocate purchase price on sale of a business to capital assets, thereby triggering ordinary v. capital gain tax treatment (recapture tax)
  • Failure to advise client to pay payroll withholding tax and sales tax
  • Overpayment of taxes due to failure to use cash method of accounting
  • Failure to properly set up DISC
  • Estate tax return errors

ERISA

  • Failure to advise client not to engage in “prohibited transactions”
  • Breach of fiduciary duty, by failing to prevent management from engaging in “prohibited transactions”
  • Negligent financial/investment advice
  • Failure to disclose “prohibited transaction” on tax return
  • Management of qualified plan’s assets, while serving as plan’s accountant
  • Complicity with management in failure to make property contributions to pension plan
  • Failure to detect that plan fiduciary had failed to set up qualified plan properly, thereby triggering disallowance of plan

Financial and Investment Advice

  • Advising client that it can afford certain expenditures
  • Advising client that a proposed restaurant investment was financially feasible
  • Failure to perform due diligence before recommending real estate partnership investment

Breach of Fiduciary Duty

  • Conversion of client funds
  • Recommending unsuitable investments
  • Failure to advise client to allocate purchase price on sale of a business to capital assets, thereby triggering ordinary v. capital gain tax treatment
  • Failure to obtain market rent on behalf of estate, where accountant served as executor to the estate, accountant to the estate, and accountant to the tenant
  • Failure to disclose receipt of commission on sale of investment
  • Failure to structure lease of real estate owned by accountant to a client as capitalized lease
  • Failure to advise client that business in which accountant had invested with others was failing, where accountant also provided accounting services
  • Failure to disclose that shareholder had converted funds from corporation to other shareholders
  • Accountant's failure to disclose to client that he was using a "straw" to purchase clients' business
  • Failure to treat partners equally
  • Failure to disclose information about one partner to another partner, both of whom are clients
  • Conversion of client assets

Other Defense Claims

  • Securities law violations
  • Conflict of interest
  • Probate of estates
  • Breach of fiduciary duty
  • Administration of estates
  • Breach of professional ethics
  • Sale of business
  • Pension/profit sharing (COBRA)
  • Self-dealing with client

Accountant Liability Trial Defense

Tom has successfully defended accountants through trial and jury verdict in lawsuits in multiple state and federal courts.  Thorough investigation, highly selective case assessment, and rigorous and disciplined preparation of all phases of litigation are the keys to the successes listed below.  Tom has been able to resolve satisfactorily virtually all these cases prior to trial.

Defeat $6.5M Claim in Accounting Malpractice Trial

Bank v. CPA Firm (Yellowstone County, Montana District Court File No.  DV 07-1463) – Won defense jury verdict on a $6.5-million claim alleging that audited financial statements failed to detect the misappropriation of the bank’s asset-based loan collateral by the borrower.  Also won summary judgment dismissing claim by bank holding company that it relied on the same audits to acquire the bank following its due diligence review of the same asset-based loan.

Jury Denies Investment Loss Claim for Management of Retirement Plan

Medical Doctor v. CPA Firm (U.S. District Court, Minn. 3-84-1515) – The jury returned a verdict for Tom’s client, the defendant, on a claim for seven-figure losses on improvident investments by an ERISA qualified investment plan, plus taxes and penalties imposed for “prohibited transactions.”

Grossly Exaggerated Damages Denied by Jury

Construction Company v. CPA Firm (Rice County District Court, Faribault, MN) – Jury returned a verdict for ten percent of the final, pre-trial settlement demand by the plaintiff, a construction company that sued our CPA client for profits allegedly lost.  The alleged loss was due to an inability to obtain bonding following late delivery of financial statements.

Bogus Claim of Negligent Compilation of Financial Statement Rejected

Radio Broadcasting Company v. CPA Firm (Hennepin County District Court, Minneapolis, MN) – Our client CPA firm was sued to collect unpaid fees and its former client, a broadcasting company, counterclaimed for lost profits, claiming that its financial statements were negligently compiled.  The jury awarded fees to the CPA firm and denied all recovery to the broadcasting company.