Establishing the standard of care in negligence claims against Accountants

In our previous blog,¹ we talked about how expert evidence is often essential to establish the parameters of the standard of care in professional negligence claims. In this blog, we outline how an expert formulates an opinion on those parameters using professional negligence claims against accountants as an example.

The measure of what is “reasonable” depends on the facts of each case, including the likelihood of a known or foreseeable harm, the gravity of that harm, and the burden or cost which would be incurred to prevent the injury. In addition, one may look to external indicators of reasonable conduct, such as custom, industry practice, and statutory or regulatory standards.²

The “reasonable standard” is inherently variable. For example, the standard of care expected of an accountant will vary depending on the services that the accountant was retained to perform.³ Similarly, where a professional holds themselves out as a specialist, they must exercise the degree of skill of an average specialist in that field.⁴ 3 SCR 674, 1995 CanLII 72, 1995 CarswellBC 593 at para. 46; see also Newton v. Netwon, 2005 BCSC 1880 where the Court held that, in certain circumstances, an accountant may be held to the standard of care of normally applied to a solicitor.]

While defining the appropriate standard of care is ultimately a question of law,⁵ in the context of professional negligence claims against accountants, the Court will often pay particular attention to evidence of the general practice of accountants in like circumstances⁶ and refer to the professional standards of conduct required by the accountants’ governing body. In Canada, regulation of conduct of Chartered Professional Accountants (“CPA”) is administered at the provincial or territorial level. Our references will be to Chartered Professional Accountants of Ontario’s CPA Code of Professional Conduct⁷ (the “Code”) as it is similar to the rules espoused by each provincial or territorial CPA body.

The Code only states what the relevant governing body expects from its members. The jurisprudence makes it clear that while conformity with professional standards will not preclude a finding of liability of negligence, it may raise a presumption that the accountant met the necessary standard of care, which the plaintiff can disprove if s/he can show that the standards adhered to were in themselves negligent.⁸

However, a client’s reasonable expectations may be different than those of the accountant’s regulatory body. Notwithstanding this fact, the profession’s code of conduct is a good starting point for clients and their advisors to consider in determining whether they feel an accountant has met the standard of care that could have reasonably been expected or not.

As such, in formulating the standard of care, the expert ought to go beyond the Code and should refer to leading texts as well as the exercise of professional judgment.⁹

Beyond the duty of care in the code, jurisprudence concludes that an expert must;

• possess knowledge of the basic principles of tax law and administration which are commonly known by reasonably well-informed accountants and to discover and consider other aspects of tax provisions which may readily be found by the careful application of standard research techniques.¹⁰
• If the matter involved the preparation of income tax returns, the standard of care is to correctly and accurately prepare clients’ income tax returns according to income tax law¹¹
• Acknowledge that the standard of care is not perfection – the question in each case is whether the accountant retained to provide tax advice or prepare the tax return lived up to the standard of care of a reasonable accountant providing the tax service s/he agreed to provide.¹²

From a practical perspective it is, in our opinion, incumbent upon an expert witness to avoid the use of hindsight and perform satisfactory due diligence regarding the facts of the engagement under review, to assess whether the accountant’s actions met the minimum standard of care the client could have expected based on the facts and the state of the law and administrative practices during the year in which the alleged breach occurred.

This is a difficult task because the question posed relates to the standard of care that could have been expected at the time of the alleged negligence, not at the time the expert is forming her/his opinion.