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Sued for failing to detect fraud?

Following are excerpts from a recent Wall Street Journal Article about Ernst and Young and the rest of the big 4...

"
Ernst & Young LLP settled for nearly $300 million a lawsuit brought against it by Cendant Corp., according to a securities filing late last year by a former Cendant subsidiary. In its suit, Cendant alleged that Ernst negligently failed to detect a massive fraud during its audits of a unit of the company.
Ernst had already, in 2000, paid out $335 million to Cendant shareholders as a result of the fraud. "

"
While the most recent settlement doesn't eclipse the size of Ernst's first Cendant payout, it is still one of the largest payments made by an audit firm. In 2007, for example, PricewaterhouseCoopers LLP agreed to pay $225 million to settle audit-malpractice claims arising from its audit of Tyco International Ltd. Deloitte & Touche LLP, in late 2006, said it would pay $210 million to resolve claims related to Adelphia Communications Corp."


I thought the firms weren't liable to the company for catching fraud, but apparently they are. Damn!

Comments

Eric said…
I'm a newb going into public accounting next year. I just wanted to say that I love your blog. It has really helped me get a clearer picture of what to expect! Thanks!

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