Monday, December 20, 2010
This is an event every accounting firm has to worry about -- getting sued when a client fails. In this case, the accounting firm Ernst & Young is about to be taken to court as a result of the collapse of Lehman Brothers Holdings. The challenge for the accounting firm is to prove that its audit was correct, but the reality is that even if it does, its reputation will take a hammering. It is no different for any professional occupation -- doctors, engineers, and yes, even lawyers when they become defendants. One option is to settle without admitting fault, but the perception of a settlement is that one did something wrong. Fighting, on the other hand, drags the affair out and might be risky. There is no good outcome, and there is no way to avoid such lawsuits. Businesses will continue to fail whether or not an audit was properly done because audits do not negate economic risk.