Ernst Young was the auditing firm of HealthSouth from...

Ernst Young was the auditing firm of HealthSouth from 1984 to 2002. Due to financial hardship Healthshore grew desperate and developed a scheme to deceive not only shareholders but Ernst and Young. Inevitably whistleblowers came forth and a lawsuit ensued. The shareholder’s lawsuit against Ernst and Young never went to trial. However, the lawsuit against Healthshore ended in settlement. Though a travesty to the shareholders and employees not involved with the fraud, this fraudulent activity was necessary for it forced the SEC to hinder these types of events to occur in the future. There may still be cases similar to HealthShore going on today had it not been for the Sarbanes Oxley act enforcing stricter requirements for auditing firms.†¦show more content†¦Scienter of statements would indicate either the auditor purposefully deceived information or made reckless decision when issuing an opinion which in both cases would qualify as an audit failure. If Ernst and Young made any untrue statements concerning material facts or omitted necessary facts on opinion this would classify as a violation of Rule 10b-5. 3a.) In 1998, an angry shareholder who described themselves as â€Å"fleeced shareholder† had e-mailed auditors and financial regulators questioning how HealthSouth was cooking their books. It is the date and detail in the e-mail that proves the most frightening. The e-mail displays that the fraud should have been caught long before it was uncovered. Unlike most investors, it was evident that this person had a background in accounting and raised legitimate concerns. Ernst Young admitted to receiving this email in November of 1998. However, Ernst Young felt the questions raised by the anonymous writer did not affect the presentation of the financial statements. Moreover, a former bookkeeper of HealthSouth, Michael Vines, also e-mailed Ernst Young about specific area of fraud. His background qualified for his email to be considered worthy evidence. Nevertheless, Ernst Young claimed that the accounting practices being question wereShow MoreRelatedStephen P. Robbins Timothy A. Judge (2011) Organizational Behaviour 15th Edition New Jersey: Prentice Hall393164 Words   |  1573 Pages10.5/12 ITC New Baskerville Std Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text. Copyright  © 2013, 2011, 2009, 2007, 2005 by Pearson Education, Inc., publishing as Prentice Hall. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval