Analyze the primary accounting issues which form the crux of the litigation or fine for the firm, and indicate the impact to the firm as a result of litigation or fine. Provide support for your rationale.
Ernst & Young was fined $2 million to resolve responsibilities relating to audits conducted for Medici's in 2005, 2006, and 2007. The main issue that made this case surface was Ernst & Young failed to properly evaluate the sales returns reserve from the company's financial statements ("PCAOB"). The PCAOB says they "failed to fulfill their bedrock responsibility," especially as one of the big four accounting firms that dominate the market ("PCAOB"). Ernst & Young had been Medicis' auditor for over 20 years. Ernst & Young did not admit or deny misconduct on their part ("PCAOB").