EuroSourceLine, which provides supplies to car parts maker AervinMeritor, accuses the firm of breach of contract and negligence, and is demanding damages.

In a writ lodged at the High Court, the company says it discovered ‘anomalies’ in its accounts for 2002 and 2003, and had to call in auditors Friend to provide revised accounts.

The alleged errors include stock cut-off errors totalling £319,535, which had not been identified, cash at the bank being understated by £612,917, and creditors understated by £529,840. Turnover was overstated by £197,448, and the cost of sales overstated by £172,689, according to a High Court writ.

The firm produced incorrect figures for profit and a profit of £70,281 was shown as transferred to reserves, but the true position was a loss of £236,571, the writ says.

EuroSourceLine says Ernst & Young inappropriately addressed some disclosure and presentational matters and a significant number of bank reconciliation and posting errors were shown in records, which would have impacted on its profit and loss account and closing balance sheet.

EuroSourceLine says the problems cost the company more than £74,000 in time and expenses and £157,460 for the work of Friend. It also claims that its credit rating was impaired and HBOS reduced its borrowings and increased charges. It was forced to find alternative funding, which cost an extra £47,185.

E&Y said: ‘This claim is without merit and we will be contesting it vigorously.’