E&Y Terminates Audit Relationship Before Being Fired

Big Five firm Ernst & Young participated in a Keystone Cops-type audit escapade [1] with its client, Health Risk Management, Inc., before quitting the engagement abruptly, and apparently, just before being relieved of its duties.

This information is being reported by CFO.com and is purportedly based on information from a Health Risk Management press release.

Shortly after releasing Health Risk's financial statements and independent auditor's report for the fiscal year ended December 31, 2000, E&Y determined some miscalculations had been made regarding the company's medical services payable liability - miscalculations that, ultimately announced, may have caused the company's stock to plunge more than 39 percent to $4.75 per share.

The audit firm changed its tune a few days after the report was released, implying that there was no error with the way in which the liability account was reported. Then E&Y switched gears again and indicated the potential miscalculation could be as high as $2.8 million for the 2000 fiscal year, and another $2.2 million adjustment would be required for the first quarter, 2001.

Health Risk Management's Audit Committee voted to oust the confused auditors, but E&Y got to the table first and tendered its resignation.