Drug distributor Accredo Health Inc. has fired its auditor, Big Four firm Ernst & Young, and is suing the firm for more than $53.3 million.
Last year E&Y examined the financial statements of home health care service company Gentiva Health Services and provided information to Accredo that led to the acquisition of Gentiva by Accredo. After the acquisition Accredo determined that Gentiva's allowance for doubtful accounts was understated.
In the lawsuit Accredo claims that E&Y failed to properly determine reserves needed to cover Gentiva's bad debts. Accredo accuses E&Y of accounting and auditing malpractice, negligent misrepresentation, breach of contract, and violating the Tennessee Consumer Protection Act. In response, Ken Kerrigan, E&Y spokesman, said, "Ernst & Young was surprised by Accredo's action today. We believe our work fully complied with all professional standards and we will defend ourselves vigorously."
This isn't the only legal issue Ernst & Young has to contend with. The firm is currently working with a Senate panel that is investigating possible abuses regarding tax shelters sold by the firm. E&Y has also been in the news lately for its involvement in providing tax advice to Sprint executives, its questionable audit techniques with regard to the Swiss state of Geneva, and its recently dismissed charges regarding the audit of British-based Equitable Life, among other high-profile cases.