Auditing

1. Introduction

HealthSouth, the largest inpatient rehabilitative healthcare services provider in U.S., was more heard by people with its notorious accounting fraud scandals in 2003. The scandal is a typical failure both in corporate governance and auditing aspects. The release of the scandal almost led HealthSouth to bankruptcy and seriously shook investors’ confidence in the quality of financial reporting, corporate governance and the creditability of auditing. In respect to its serious consequence and the aim to learn from this scandal as a way to improve company’s corporate governance and auditing quality, it is necessary to have a deep analysis in HealthSouth scandal. This essay will critically examine the scandal of HealthSouth and suggest ways to minimize the probability of corporate governance and auditing failures. First, it will give a brief introduction about the background of HealthSouth. Then the emergence of its accounting frauds will be briefly explained with a view on its enhancement. Then it will mainly analyze the chief factors contributed to the scandal which are the weaknesses in corporate governance with possible improvements provided. Moreover, the HealthSouth scandal also relates to the failure in its external auditing by Ernst & Young (E&Y). Therefore, E&Y’s low quality auditing will be examined using proper model with a critical discussion of solutions. However, both the corporate governance and auditing failure are just reflections rather than the real cause of this scandal. Hence, it will briefly discuss the real cause of HealthSouth’s fall. Finally, it will conclude with its own opinion on the improvements and the future of corporate governance and auditing.

2. Background

HealthSouth was founded in 1984 by Richard Scrushy who was the former chief executive officer. It is the largest provider of US’s inpatient rehabilitative healthcare service which owns 93 inpatient rehabilitation hospital, 6 freestanding long-term...