As mentioned in Auditing in Action 3-2, Ernst & Young recently paid the largest settlement in a Canadian class action suit related to its audits of Sino-Forest. It subsequently paid an $8 million penalty to the OSC in relation to its audits of Sino-Forest and the athletic shoe manufacturer, Zungui Haixi Corp. In its press releases regarding both of the settlements, Ernst & Young did not admit to any wrongdoing.

REQUIRED

a. Using appropriate sources, research the case and decide
whether or not you agree with the OSC’s allegations that Ernst & Young failed to perform sufficient audit work to verify the existence and ownership of Sino-Forest’s timber assets and failed to perform the audit with an appropriate level of professional skepticism.

b. Discuss your views on Ernst & Young’s agreement to settle the class action suit and the OSC case despite claiming its audit work met all professional standards.