Evaluation of disclosure controls and procedures

Assignment Help Financial Accounting

Reference no: EM133208267

In the SEC filing by the new management of Healthsouth, it was noted that the audit reports by Ernst & Young "did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles." Below is an excerpt from the SEC filing:

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

We filed a Current Report on Form 8-K dated March 31, 2003 to report that our Audit Committee had determined to replace Ernst & Young LLP as our independent accountants. We filed a Current Report on Form 8-K dated April 11, 2003 to report (1) that on March 31, 2003, representatives of our Audit Committee notified Ernst & Young LLP of our determination to dismiss them as our independent accountants, and (2) that we received a letter from Ernst & Young LLP on April 4, 2003 confirming that the client-auditor relationship between HealthSouth and Ernst & Young LLP had ceased. We filed a Current Report on Form 8-K dated May 8, 2003 to report that the Audit

Committee engaged PricewaterhouseCoopers LLP as our independent accountants.

Prior to their dismissal, the audit reports of Ernst & Young LLP on our consolidated financial statements for the years ended December 31, 2001 and 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. During the years ended December 31, 2001 and 2000 and through March 31, 2003, there were (1) no disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to Ernst & Young LLP's satisfaction, would have caused it to make reference to the subject matter in conjunction with its report on our consolidated financial statements, and (2) no reportable events, as listed in Item 304(a)(1)(v)(A)-(D) of Regulation S-K, except for matters disclosed in our Current Report on Form 8-K dated April 11, 2003 and incorporated herein by reference. As a result of the circumstances giving rise to the review of our historical financial records, Ernst & Young LLP withdrew its audit reports on all of our previously issued financial statements. Additionally, the new management of Healthsouth included in the SEC filings its appointment of a special committee to look into the accounting irregularities. Below is an excerpt from the SEC filing:

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our new management team, under the supervision and with the participation of our chief executive officer and chief financial officer, has completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934. This evaluation followed several significant initiatives relating to our disclosure controls and procedures, including the following:

• A Special Audit Review Committee of our board of directors conducted an independent forensic investigation of accounting irregularities at HealthSouth with the law firm of Balch & Bingham LLP as special counsel and PricewaterhouseCoopers LLP as its accounting advisors. The Special Audit Review Committee released its report publicly on June 1, 2004. The report concluded, among other things, that there were serious weaknesses in our internal controls as well as serious failures in our corporate governance during the time period examined, which included January 1, 2000 through December 31, 2002.

• We engaged Grant Thornton LLP, Callaway Partners, LLC, KPMG LLP, and American Appraisal

Associates to assist us in reconstructing our financial records back to December 31, 1999, which efforts resulted in the identification of material misstatements in our previously issued financial statements. We also engaged Deloitte Consulting LLP to assist us in connection with our project management efforts with respect to the reconstruction process.

Based on the case above, what is or are your assessment(s) on the type or types of audit opinion(s) EY could have issued on the audit reports from 1996 to 2000; 1994 to 1999; and 1992 to 2003. Explain your rationale in detail.

Reference no: EM133208267

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