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FRC will ask E&Y about Lehman transactions

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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