On December 19, 2023, the First Department issued a decision in Channel Fabrics, Inc. v. Skwiersky, Alpert & Bressler LLP, 2023 NY Slip Op. 06471, holding that an accounting malpractice claim failed because of the limited scope of the accountants’ engagement, explaining:
To state a claim for accountant malpractice, a complaint must allege that there was a departure from accepted standards of practice and that the departure was a proximate cause of the injury suffered by plaintiff. An accountant’s engagement letter governs the parameters of their retention. An accountant who has been retained to perform a review engagement is responsible for duties more limited in scope than an accountant hired to conduct an audit.
The crux of the complaint is that defendants were negligent and committed malpractice by not discovering an alleged deficit in plaintiff’s financial statements, and by failing to report that deficit to plaintiff. However, these allegations are utterly refuted by the documentary evidence, which defined the scope of the parties’ engagement and confirmed that defendants had no such duty.
The engagement letters specified that defendants had been retained to conduct a review engagement—not an audit—and that defendants’ engagement could not be relied upon to identify or disclose any financial statement misstatements. The engagement letters also stated that defendants would assist in the preparation of plaintiff’s financial statements but the responsibility for the financial statements remains with plaintiff, and expressly stated that defendants would not express an opinion regarding the financial statements. Thus, the engagement letters confirmed that the responsibility for discovering issues with plaintiff’s finances remained with plaintiff, not defendants.
Nor did the complaint allege facts indicating that defendants’ review engagement deviated from the accepted standards of practice. Rather, the complaint presented only conclusory allegations that defendants failed to identify errors in the financial information that plaintiff had provided to them. Plaintiff refers to vague analytical procedures that purportedly would have uncovered mistakes in its financial reporting, which then were to have been verified through defendant’s questioning of plaintiff (and not, as in an audit, the questioning of third parties). However, plaintiff fails to explain how engaging in analytical procedures would have uncovered the deficit or identify the specific analytical procedures that defendants should have, but did not, perform. Plaintiff has also not identified the specific errors in its accounts receivable that the analytical procedures would have supposedly revealed.
(Internal quotations and citations omitted).