Proshare Logo
   Market Date: 29-01-2015   
Agriculture ARTS FINANCE All One Min News Archives Bonds Cap Mkt Sentiments Capital Market CASHLESS NIGERIA Commodities Corporate Earnings Daily & Weekly Market Updates Elections Enterpreneurship ETFs Forex Frauds & Scandals General Global Market Insurance Investors NewsBeat Islamic Finance Mergers & Aquisitions Money Market Mortgage Mutual Funds Nigeria Economy Oil Sector Opinions and Analysis Pensions People Personal Finance Politics Power Products & Services Professionals Property Public Offers Private Placements Regulators REITs Stock PICKS Taxation Telcos Travel & Tours Unlisted OTC MARKET World of Business

Ernst & Young faces inquiry over Lehman audit

Category: World of Business

  Read (6954)
Ernst & Young faces inquiry over Lehman audit

Elena Moya Wednesday 16 June 2010

Britain's accountancy regulator will today launch an investigation into Ernst & Young's role as auditor of the European arm of Lehman Brothers.

The investigation follows an allegation in March by a US court-appointed examiner that E&Y – one of the world's "big four" accountancy firms – approved accountancy tactics that allowed the failed investment bank to hide $50bn (£33.7bn) of debt off its books.

"The accountancy and actuarial discipline board (AADB) has begun an investigation under its accountancy scheme into the conduct of E&Y as auditors to Lehman Brothers International Europe," said the Financial Reporting Council (FRC).

One industry expert described the inquiry as the "tip of the iceberg" and said it opened up the prospect of a flood of legal claims against the firm.

The report by US court examiner Anton Valukas found that a sales programme known as "Repo 105", which involved the artificial sale and buy-back of deals, was used to make it look as though the company had not borrowed as much money as it had. Valukas described the trick as "window dressing", an "accounting gimmick" and a "drug".

Valukas also said Lehman could have a plausible claim against E&Y for missing the danger of such a programme, which misled investors. In addition, E&Y did not inform the audit committee on Lehman's board about a whistleblower who had raised concerns, he said.

E&Y said it planned to fully co-operate with the investigation, and reiterated that it was guilty of no wrong-doing.

"E&Y's audit opinion stated that Lehman's financial statements for that year were fairly presented in accordance with the relevant accounting standards, and we remain of that view," the accountancy firm said in a statement.

The UK regulator has now decided to start a more detailed investigation. Following the US examiner's report, the FRC has asked E&Y to provide further details and documents about the controversial repo agreements.If negligence is found, it could trigger a wave of lawsuits against E&Y.

UK law firm Linklaters was also described as aiding the transfer of funds because it had said that the transactions were legal under English law. It denied any wrong-doing.

The audit profession has been widely criticised for its model, where companies pay to receive an opinion. As with credit rating agencies, a bad opinion may lead the client to move to a competitor.

Essex University professor Prem Sikka has long advocated fundamental reform, arguing that guidelines demanding more transparency would not be enough.

"The E&Y fiasco is just the tip of the iceberg, of [problems caused by] the close relationship between the audit firm and its clients," Sikka said. "E&Y were aware of 'repo 105' – and auditors are more powerful than the police – they can examine anything, interview anybody without a court order; they already have the statutory right."

Accountancy firms, however, "are reliant on clients because of the fees; that influences what they are willing to do and say publicly, and all too often, bad news is buried," Sikka said.

The involvement of audit firms in big accounting scandals such as WorldCom and Enron, which put Arthur Andersen out of business, shows that "audit firms, simply can't deliver".

Because banks have a key role in the economy, they should be audited on a daily basis by the central bank or an official regulator, he said.


Tags: , 

Comment With Your Facebook or Yahoo! ID

Latest news

News on World of Business

About Us

Who We Are
Our Team & Partners
Corporate Governance
Advertise with Us
Subscribe / Unsubscribe
Site Map
News Feed - RSS
Contact Us
Volunteer Program
Message from CEO

News & Features
The Analyst / Market Data
Investor Relations Portal
The Regulator
Economy & Politics
Training Portal
Events Calendar
NewsStands - Online Reputation

Products and Services

Research & Market Intelligence
Analyst Services
Offers & Rights Support Service
Investor Relations Services
Alert & Subscription Services
Share Support Services
Proshare Consult
Event & Seminar Coverage
Market Directory
File a Complaint
News & Analysis

News from TheANALYST
Video News from WebTV
Money Market Updates
Opinions & Analysis
Nigerian Economy
Market Data
The Regulator
Discussion Forum

Subscriber Agreement
Privacy Policy
Data Policy
Copyright Policy
Comments in Site
Advertising Code
Conflict of Interest
Content Partnership
3rd Parties

Online Trading and Execution
Legal Support Services
Web/Technology Services
File a Complaint

CBN Governor 2014