Lehmans: What the papers say

A root and branch review of the audit profession is required, the weekend
papers have reported, after criticism of Ernst & Young’s audit of
Lehman
Brothers.

The
Guardian reported that MPs want a review of how the audit
industry works, plus consideration of the non-audit consultancy work they
undertake for clients.

Tory MP Michael Fallon said a “fresh approach” was needed that revealed risky
practices by banks.

Lib Dem Treasury spokesman Lord Oakeshott said banning audit firms from
accepting additional consultancy work was a starting point to cleaning up the
profession.

The report into the collapse of Lehmans alleged that the bank used legal
accounting practices to help misrepresent the financial position of the company.

It also questions whether auditors Ernst & Young were professionally
negligent over their acceptance of Lehmans use of accounting rules, which saw
$50bn of debts kept off the balance sheet.

The
FT
said that the report would bring auditors’ role back into the spotlight – but
the fallout shouldn’t damage E&Y irrevocably.

The
Daily
Mail’s Simon Watkins wrote: “This weekend E&Y is far from
finished, but it is safe to say that the Valukas report has left its stunned.”

Further reading:

Lehman
administrators consider damning report

E
&Y “negligent” in Lehman audits, report claims

Report
claims E&Y knew about Repo transactions

Lehman
CFOs were warned of “reputational risk” of transactions