FRC will ask E&Y about Lehman transactions

by Mario Christodoulou

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15 Mar 2010

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The UK's reporting regulator said it will investigate the accounting treatment of Repo transactions which were at the centre of professional negligence claims directed at Big Four firm Ernst & Young and their audit of collapsed bank Lehman Brothers.

The Financial Reporting Council said it would ascertain the facts "on how the 'Repo' transactions were accounted for and audited in the UK in order to determine any implications".

The board said it would speak with Ernst & Young, who last Thursday were accused of professional negligence, and failing to challenge Lehman Brothers' use of repo transactions in the years before its collapse.

The firm said at the time it stood by its audit decision. Yesterday it said it would "cooperate fully with all relevant parties on this matter".

Repo transactions are used by banks to swap assets for short term cash. Lehman Brothers was accused of using the transactions and the accounting treatment to artificially distort their balance sheet.

FRC Statement on issues raised in report on Lehman Brothers

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