Big Four firm Ernst & Young has filed suit against embattled outpatient care provider Health South, charging it with hiding massive accounting fraud from the audit firm and subsequently exposing it to litigation and damaging its reputation. According to the Associated Press, the suit, filed March 18, charged that testimony in the ongoing fraud trial of former HealthSouth CEO Richard Scrushy demonstrated that company executives faked financial documents to hide the fraud from its auditors. Ernst & Young served as HealthSouth's auditor from 1996 to 2002 -- the period, prosecutors charged, when earnings were inflated by about $2.7 billion. Ernst & Young is seeking reimbursement of any litigation costs the auditor must pay in lawsuits related to the HealthSouth fraud, as well as unspecified damages for lost business.

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