What is an Accounting and When Would You Ask for One?

It often happens that we have to sue someone, because we believe that they have mismanaged a business, or stolen property, or diverted assets, or done anything else that could be considered fraudulent.

The problem is that the fraud itself, prevents us from even knowing exactly how much we may have lost. In claims of fraud or mismanagement or breaches of fiduciary duties, the culpable party may have hidden assets or commingled property or “cooked books” to such a degree, that you have to file a lawsuit, but even if you win, you can’t really tell the court or jury, “this is how much I’ve lost.”

In other cases, the financial transactions may be very complex—too complex for you to know how much may have been lost or stolen.

An Accounting Can Help

This is where an action for an accounting comes in.

As the name implies, an accounting asks the court to order that the books and records of a company or business or person be collected and combed through and analyzed, to get a handle on exactly how much money has been stolen or lost.

To get an accounting, you must show to the court that there is some reason why the accounting is needed—that is, why the exact measure of damages can’t be readily ascertained without an accounting being granted.

Accounting is usually ordered in cases that allege that there is some fiduciary duty. Imagine, just for example:

• A shareholder suing a business for mismanagement of the company (a shareholders derivative act)
• Business partners suing each other, claiming fraud or self dealing or mismanagement
• A trustee or financial advisor, being sued by a client or others who relied on them, to handle funds on their behalf
• A lawsuit where there is an allegation of infringement, embezzlement, or misappropriation of trade secrets, and the Plaintiff needs to know how much was made illegally by these actions
• Lawsuits that involve a request to dissolve a business, but the court needs to know what assets, receivables, and liabilities, the company has, in order to properly dissolve, and liquidate the business’ assets

Bifurcating the Case

An accounting is somewhat invasive—you’re combing through a  Defendant’s financial books and records. That’s why very often, a court will separate, or bifurcate the accounting, from the rest of the case.

In other words, a court will first have a trial to see if, in fact, the Defendant is liable for whatever is alleged in the Complaint. Only if that is the case (the Plaintiff wins), will the court order that the accounting go forward, to see what the damages are.

Analyzing the Financial Records

At that point, the party doing the accounting must request books and records, a process that by itself can take some time.

Because an accounting takes professional knowledge, experts often must be called in to conduct the accounting. Often, the court will make the Defendant pay the expense related to the accounting.

Call our Fort Lauderdale business litigation lawyers at Sweeney Law P.A. at 954-440-3993 for help if you’ve been defrauded, or been a victim of a breach of a fiduciary duty.