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  • Writer's pictureA. Christine Davis, CPA/CFF, CVA, CGMA

GAAP Violations and GAAS Failures Highlighted in Accountant Malpractice Matter During Mediation

Updated: Mar 3, 2022

Chris Davis of Financial Evidence Group successfully assisted counsel and their client in an accountant malpractice matter that was recently resolved in mediation. Counsel’s client was awarded a multi-million-dollar figure for its claims against a top tier CPA firm.


Using her expertise in generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS) and her significant experience in litigation involving the standard of care for accountants, Chris gathered, interpreted, and presented persuasive evidence that, for a 4-year period, the audited consolidated financial statements of a now-bankrupt company that formerly reported hundreds of millions of dollars in revenue, contained material misstatements due to a pervasive misapplication of GAAP in several areas and omitted the required going concern disclosures. Nevertheless, those financial statements received clean (unqualified) audit opinions each year and which counsel’s client, a global lender, relied upon to issue millions of dollars through a line of credit to the CPA firm's audit client.


The GAAP violations primarily arose from the misapplication of revenue recognition standards and accounting errors arising from the apparent misuse of facts. The GAAS noncompliance was also pervasive, and included evidence of the audit firm “auditing its own work” by providing management-type services in contradiction to independence rules for auditors of financial statements.


Counsel summed up their work with Chris as a “terrific experience and we enjoyed working with you. Looking forward to the next one.”


Financial Evidence Group is grateful for the opportunity to contribute its expertise in GAAP and GAAS and provide vital forensic accounting support to counsel and their client. We congratulate them on this highly successful outcome.


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