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Client's negligence absolves accountant's negligence.

The Maryland court of appeals ruled a client's negligence in failing to take appropriate steps to prevent an embezzlement barred its recovery against an accountant who failed to detect the embezzlement.

Howard Street Jewelers retained Gilbert Wegad to compile financial statements for its business. Wegad issued an engagement letter specifically disclaiming any duty to disclose fraud, defalcations or other irregularities. Despite the limited scope of his engagement, unexplained cash shortages prompted Wegad to inform the client at yearly meetings in 1983 and 1984 of the possibility someone was stealing from the store.

In response, the client sued Wegad, alleging he should have detected and disclosed the embezzlement. Although the jury found Wegad negligent, it also ruled the client's contributory negligence served to bar it from recovering against Wegad.

The court of appeals, ruling for Wegad, stated the client "should not be permitted an absolute and unqualified right to rely on the accountant's advice and thereby be completely insulated from responsibility for his or her own shortcomings. For example, we do not believe that an accountant's negligent failure to report shortages completely insulates the client who consistently leaves the company's cash unattended and fully accessible to all employees and customers." (Gilbert Wegad v. Howard Street Jewelers, Inc. 326 Md. 409, 605 A.2d 123)
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Title Annotation:Maryland
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Mar 1, 1993
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