Question 1. What is the difference between ordinary (simple) negligence and gross negligence on the part of a financial statement auditor? How does gross negligence (constructive fraud) differ from fraud? Ordinary (Simple) Negligence Ordinary negligence is the “violation of legal duty to exercise a degree of care that an ordinary prudent [CPA] would exercise under similar circumstances.” On part of a financial statement auditor, ordinary negligence can be defined as a CPA failing to exercise due professional care whether or not it results in a material mistatement. (McGraw Hill Education, 2010) Gross Negligence Gross negligence is more severe than ordinary negligence. It is the “lack of even slight care, indicative of a reckless disregard …show more content…
E&Y failed to verify Bill Owen’s suggestion that Michael Vines was motivated to retaliate against HealthSouth because he was a disgruntled employee fired for sexual misconduct. E&Y never reviewed his personnel record and did not exhaust the options available to contact him directly. This represents a lack of due diligence on behalf of the audit team to classify these allegations as unfounded. 2. E&Y assumed they had enough knowledge of the fraud alleged by Michael Vines based exclusively on his email. They should have contacted him to discover exactly where the fraud was occurring. Their audit plan to address the allegations was consistent with E&Y’s standard operating procedure which HealthSouth’s accounting team was proficient at evading. 3. E&Y was very interested in performing highly profitable “pristine audits” for HealthSouth. These “audits” a various other services provided by E&Y could be classified as non-audit related services and stand to violate the independence of the firm. This is in violation of GAAS – General …show more content…
It is evident transactions were tested and these line items are accounting concerns that arose. Item 10 does raise concern, “What are the plans for the Orlando trip?” Is this E&Y auditor planning to take a vacation with Bill Owens? If so, I fear independence is lacking. Documents 2-7 – Journal Entries Capitalizing Expenses under $5,000 These are major red flags that should have been discovered by E&Y. So many of these transactions going unnoticed is a clear point of negligence on E&Y’s behalf. Audit planning was not thorough and controls were relied upon too heavily. Documents 8-10 – The Fleeced Shareholder’s Anonymous Letter and Resolution This document brings to light several of HealthSouth’s fraudulent schemes. It was allegedly taken seriously per the E&Y panel that testified in the C-SPAN video, but an independent and objective investigation was not performed to the level it should have been. Much of the work was deferred to HealthSouth who then manufactured documents and justifications for each of the fleeced shareholder’s allegations. This is a clear lack of due diligence on E&Y’s behalf that is evident of ordinary negligence. The audit team placed trusted the HealthSouth accounting team, after all any were former E&Y
In addition, by deciding not to inform the limited partners of Ed’s deceit, Andrea would be disregarding the American Institute of Certified Public Accountants Code of Professional Conduct in her being unreliable, dishonest and deceitful. Andrea has the responsibility of protecting her client, which involves encouraging the correction of financial statements in order to prevent suspicion during audits that could lead to fines and imprisonment.
As a partner in the public accounting firm of Deloitte & Touche. LLP. James, in this case, was responsible for this violation. First, James was no on the basis of full inspection of the subsequent discovery existing at the date of the auditor 's report. Second, he did not detect and address problems regarding Ligand Pharmaceuticals ' exclusion of certain types of returns from the evaluation of future returns. Last but not least, he did not adequately perceive the reasonableness of Ligand’s estimates of future product
The second element of the negligence is the breach of the duty of due care. By definition, “Any act that fails to meet a standard of the person’s duty of due care toward others” (Mayer et al,. 2014, p. 161). George breaches the duty of care because he did not set the parking brake, which then scraped a Prius that is driving up the road, then crosses the 6th Avenue service drive, breaks through the fencing and smashes into the light rail
March 20, 2003, Richard Scrushy, the former chief executive officer of HeathSouth Corporation, was charged by the Securities and Exchang...
When Vines had caused auditors to investigate further, HealthSouth could have made an easier recovery and experienced less of a downfall if they did not cover up the matter then. HealthSouth did have opportunities to own up to the fraud, had they have taken those opportunities they would have put some ethics into practice. However, the constant denial and the spreading of the knowledge and involvement in this fraud had made it clear there was no ethical framework. They did experience major losses because of this. Customers were not using their services because of their damaged reputation, and HealthSouth also had to cover many legal
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
All audit companies should be aware of the conditions in which fraud exists: incentive and pressure, opportunity, and rationalization. When Main Hudman planned Crazy Eddie’s audit in 1986, the auditors needed to see that the electronic industry boom days were over. This should have been a red flag for the auditors during this time; to be sure, they were evaluating
HealthSouth is A Public company who is providing outpatient rehabilitation services, They noticed that the business is not that great as they proclaimed, business is not so profitable and it also have too much expenses which this will end up taking away from the profit and they will show lower earnings that expected so they came up with a fraudulent idea to create false entries in their books by claiming that the expenses they have is not real expenses, they called it investing like everyone understands when a business is buying a building its not called a expenses which will show the business less profitable ,it is the opposite the business is growing, the same think they did with entering regular expenses like payroll or utility expenses
Negligence, as defined in Pearson’s Business Law in Canada, is an unintentional careless act or omission that causes injury to another. Negligence consists of four parts, of which the plaintiff has to prove to be able to have a successful lawsuit and potentially obtain compensation. First there is a duty of care: Who is one responsible for? Secondly there is breach of standard of care: What did the defendant do that was careless? Thirdly there is causation: Did the alleged careless act actually cause the harm? Fourthly there is damage: Did the plaintiff suffer a compensable type of harm as a result of the alleged negligent act? Therefore, the cause of action for Helen Happy’s lawsuit will be negligence, and she will be suing the warden of the Peace River Correctional Centre, attributable to vicarious liability. As well as, there will be a partial defense (shared blame) between the warden and the two employees, Ike Inkster and Melvin Melrose; whom where driving the standard Correction’s van.
His project manager, Oliver Freeman, changed the analysis. that Daniel submitted in order to get a clear opinion so that their firm may get an exclusive account. The. My decision was to report the incident so that the correct information would be supplied in the audit documents. The decision I chose may cost Baker Greenleaf to lose an important client and Oliver Freeman to lose his job, but it will uphold the integrity of the accounting profession and keep Daniel Potter safe from the liability of providing false information.
The SEC also alleges that at no time during this period did Bristol-Myers disclose any of this information regarding their channel stuffing or inappropriate accounting procedures. The SEC also feels that
In this Whistleblower Case Cecilia Guardiola, a former employee of Renown Health filed a lawsuit under the False Claims Act against Renown Health on June 1, 2012. The plaintiff alleged that fraudulent Medicare claims have been submitted by Renown Health for short stay inpatient claims that should have been outpatient claims. The original complaint that was filed has been seal according to order at the request of the plaintiff (Health, 2014). According to information from case Guardiola was hired by Renown Health June 2009 as Director of Clinical Documentation with main responsibility to improve the medical documentation to support and enhanced billing. Guardiola was then promoted to a new position as Director of Clinical Compliance, she later resigned in January 2012 alleged that efforts to improve the billing system were precluded by Renown. (Guardiola v. Renown Health, 2014).
Problems at HealthSouth were being uncovered in 2002. In early 2002, Scrushy sold over $75 million dollars worth of stock and an additional $25 million back to HealthSouth. It was also disclosed in August of 2002 that a new Medicare payment policy would greatly lower reimbursements and consequently the stock would lose more than half of its value. Shareholder lawsuits were filed alleging that Scrushy acted on insider information when selling his shares of stock earlier in the year.
Negligence is a concept that was passed from Great Britain to the United States. It arose out of common law, which is made up of court decisions that considered whether a defendant had an obligation to act with greater care. It is conduct which falls below the standard established by law for the protection of others against unreasonable risk of harm and involves a failure to fulfill a duty that causes injury to another. Many torts depend on whether there was intent but negligence does not. Negligence looks to see whether the person had a duty to act with care. It emphasizes the need for people to act reasonably in society. This is important because accidents will happen. Negligence helps the law establish whether these accidents could have been avoided, if there was a breach of duty to act reasonably, and if that breach was the cause of injury to that person. By focusing on the conduct rather than the intent of the defendant, the tort of negligence reflects society’s desire to
This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such