Is Your CPA Firm Liable If Embezzlement Occurs?
Recent Ohio case addresses this issue.

Thoma v. Barnes, Dennig & Company, 784 N.E.2d 1207 (Ohio 2003)

Background. Can an employer sue its accountants for failing to discover that a bookkeeper was embezzling large sums of money over a 6-year period? This is the question addressed by an Ohio court in a recent case. While the case involved a for-profit business, the court's conclusions are equally relevant to churches and other nonprofit organizations.

For twelve years a company used a local CPA firm to perform yearly "reviews." In a review, the CPAs review the client's financial documents (including bank statements), speak with the client's employees, and create financial statements for the client. During a review, a CPA firm would also perform "analytical tests" on account balances to verify that those figures were calculated using generally accepted accounting principles. A review is more thorough than a "compilation," which only requires the CPA to place the client's internal income statement and balance sheet into a financial-statement format, but less thorough than an audit, which requires the accountant to verify the financial information (account balances) it received from the client by contacting the appropriate financial institutions.

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Posted: March 1, 2004
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