Video: Penalties for Breach of Contract

In this lesson, Nick Palazzolo, CPA, delves into the repercussions that may follow a CPA's failure to honor commitments, laying out the landscape of potential legal penalties for breach of contract in the accounting domain. He articulates the nuances of various remedies available to clients, starting with rescission aimed at unwinding the contract as if it never happened. Nick also unpacks the concept of specific performance, a rare but powerful legal consequence that could compel a CPA to fulfill contractual promises. He thoroughly examines money damages, the typical go-to for clients seeking reparations, and finally, Nick dissects punitive damages, the heftiest of punishments reserved for particularly vile professional missteps. Emphasizing the importance of understanding these penalties, he navigates through this complex jurisprudence with clear examples, ensuring a comprehensive grasp of the subject matter.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Let's see about penalties imposed against an accountant who breaches contract duties. Now, we've seen lots of penalties, but these are even more penalties. Again, what are we going to benefit from here? Double dip in. Well, you'll see these again in our business law, but this is specifically related here as well. A CPA's liability to a client can take various forms depending on the circumstances and the nature of the breach or misconduct. Now, these are four different damages. The rescission, rescission, this is going to be a legal remedy that aims to restore both parties to their original positions before the contract was entered into, trying to make it as if this never happened. In the context of a CPA's liability, if a client can prove that the CPA breached the contract or committed fraud or misrepresentation, the client may seek rescission of the contract. This means the client's no longer obligated to perform and the CPA wouldn't need to return any fees or compensation received, but you don't have to do your part and you give the money back. Now, specific performance. Again, we will see this in business law. Specific performance, this is a legal remedy that requires a party to fulfill the terms of a contract rather than paying monetary damages for non-performance. So you got to go through with it. You got to do it. In the case of a CPA's liability, specific performance may be sought if the CPA failed to deliver certain services as agreed upon in the contract. However, specific performance is generally less common in professional services. Contracts, as courts are often reluctant to force parties to continue working together when trust has been broken. Makes sense, right? But where would you see this likely in just the law?

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Federal Tax Procedures

Module: 2 Concepts, 35 Videos

Common Law Duties and Liabilities to Clients and Third Parties Overview

1:52

Introduction to Common Law Duties and Liabilities to Clients and Third Parties

1:35

Legal Liabilities of Tax Preparers

7:08

Example of a Breach of Contract