A FEDERAL APPEALS COURT has revived a lawsuit which accuses Grant Thornton of defrauding the shareholders and bondholders of a broadband services company.
Grant Thornton had audited Winstar Communications, which collapsed in 1999 during the dot.com bubble bust, Reuters reports.
The US district court of appeals in New York will review the original ruling by a Manhattan federal judge. The appeal court has suggested the original ruling was wrong to dismiss the suit, which claims Grant Thornton deliberately ignored signs of fraud when auditing Winstar's financial statements in 1999.
Writing on behalf of a three-judge appeal panel, circuit judge Raymond Lohier said Grant Thornton failed to identify "red flags" and "repeatedly failed to scrutinise serious signs of fraud by an important client".
"A jury reasonably could determine that the audit was so deficient as to be highly unreasonable, representing an extreme departure from the standards of ordinary care," he said.
The case will return to the district court on appeal and is likely to go to trial.
Jonathan Levine, partner at law firm Girard Gibbs representing investors and other creditors, said: "We're obviously very pleased.
"You can't look at the quantity of the audit, but the quality."
You may also like
If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.
In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.