Big Five firm Ernst & Young has been hit with a lawsuit by Bull Run Corp., a company that provides, among other things, marketing and event management services to universities, athletic conferences, associations, and corporations.
The lawsuit alleges that E&Y failed to discover material errors in the accounting for prepaid expenses and receivables in its audit of Universal Sports America, Inc., a company that Bull Run acquired in late 1999. According to Bull Run, the company claims it "placed significant reliance on Ernst & Young's audit reports on the audited financial statements of Universal issued prior to the acquisition, and that those financial statements contained material errors."
The accounting errors resulted in an overstatement of net assets in the range of $11.3 million to $13.7 million. Due to the errors, Universal was forced to reissue financial statements. "[Universal's] financial statements contained materially false and misleading statements that would have been discovered by any competent auditor diligently following applicable professional standards," claimed the complaint, which was filed January 7. "EY's audit work had been negligently performed."
Meanwhile, E&Y is standing behind its work. "The firm is satisfied our work met professional standards and the firm is prepared to vigorously defend itself against this suit," said E&Y's director of public relations, Les Zuke.