PwC, administrators of Lehman Brothers European business, is considering its next move in the wake of a damning report which criticises accounting policies at the investment bank and the role of auditors Ernst & Young.

A senior figure close to the administrators confirmed they had the option to pursue the auditors through the courts if they concluded there was a case to answer.

Accountancy Age understands PwC administrators are considering the report and their next steps.

The source said the issue was "too complex" to provide a snap judgement.

Administrators will take their time to digest the facts contained in the 2,200 page dossier before deciding whether to take the matter to court.

A report for the US Bankruptcy Court released late on Thursday accused E &Y of being "professionally negligent" in its audit of the collapsed banking giant.

E&Y dispute the allegations.

The report centred on the use of so called repo transactions, used to move high risk assets off its balance sheet.

It claimed the transactions - known as Repo 105s - had no economic substance.

PwC is continuing its attempts to claw back cash for creditors of Lehman Brothers European arm. Administrators have already returned $13.3bn (£8.8bn) to creditors, as of September last year.

Ernst & Young said in response to the publication of the report:

“Lehman’s bankruptcy, which occurred in September 2008, was the result of a series of unprecedented adverse events in the financial markets. Our last audit of the Company was for the fiscal year ending November 30, 2007. Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles (GAAP), and we remain of that view.

"After an exhaustive investigation the Examiner made no findings in his report that Lehman’s assets or liabilities were improperly valued or accounted for incorrectly in Lehman’s November 30 2007 financial statements.

"The leverage ratios that were reported in Lehman’s Management’s Discussion and Analysis (MD&A) were the responsibility of management, not the auditor. They are not part of the audited financial statements."

This would not be the first time administrators have gone after the auditors of a collapsed company.

In 2005, PwC sued auditors KPMG for negligence over the collapse of insurance giant Independent Insurance. The case was settled out ofcourt.

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