Deep pockets sometimes spell deep payback … and there may be no end in sight. Litigation was filed last week on behalf of Source Media shareholders against the Dallas office of Ernst & Young in what shareholders claim is negligence on E&Y's part in failing to find fault with Source's books.
The suit is based on a negative turn in earnings that brought stock prices down. Stockholders found fault with E&Y because they say the Big 5 firm should have warned Source and its owners. Source is a Dallas-based company offering interactive programming and content.
Industry analysts commented that a downturn in the stock market may signal similar lawsuits, but members of the accounting profession say this speculation won't prevent them from auditing the books of public companies, according to C.S. "Bud" Kulesza, president of the Institute of Management Accountants.
Lawsuits of this type also are extremely rare because attorneys say it is too difficult to prove any wrongdoing on the firm's part. E&Y filed a 30-day extension in late August in order to provide answers to the lawsuit.