Difference Between Ordinary and Gross Negligence

The difference between ordinary and gross negligence is in the manner in which it is performed. Ordinary negligence occurs when an auditor fails to exercise due care on an engagement. The act is not intentionally or consciously done and can occur in any situation where control procedures are not fully performed. Gross negligence occurs as a result of willful and conscious wrongdoing. It is a complete disregard for the rules or controls that are put in place within an engagement. In most cases of gross negligence, one party suffers harm or damage to a certain degree.

        The difference in gross negligence and fraud is defined by a few small elements. These elements involve specific situations where one party suffers and the other gains. The main difference is that fraud is a knowledgeable intent to deceive another party for a justifiable reliance. Gross negligence is simply a representation being made with lack of evidence with intent to induce reliance by another.

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1. Michael Vines was a bookkeeper with HealthSouth at the time of the emails. These emails add to our opinion that E&Y suffered a degree of ordinary negligence. The emails address the concerns that many people were starting to have at the time. Within the emails, the “fleeced shareholder” questions the “tens of millions of dollars in AR that was over 360 days old”, and “how can some hospitals have no bad debt reserve.” The shareholder then goes on question how the auditors at E&Y could ever “miss this stuff.” Soon after, this evidence was presented to E&Y and to correct it they re-classified the material variances in the accounts that were off. Additionally, E&Y simply said that “the accounting was legitimate” and that no extra steps were necessary.

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1. There is undoubtedly a degree of negligence on E&Y’s part regarding the HealthSouth case. The red flags were present and then ignored during the period of the relationship……The emails between Michael Vines and the “fleeced shareholder” were evidence that there was a problem with the books. Within the emails there are numerous questions raised about how HealthSouth was running their operations. Vines responded to the questions regarding AR and bad debt, but this was evidently the work of clever accounting. E&Y was made aware of several accounts with material variances and made attempt to inform the HealthSouth directors, but instead re-classified the variances and “corrected” the issue.

1. The evidence against E&Y’s negligence involved the clever bookkeeping used by HealthSouth. Their books largely displayed false recordings and therefore were mostly looked over by the auditors.