PracticeAuditLehman administrators consider damning report

Lehman administrators consider damning report

PwC, the administrators of Lehman Brothers European arm, considers report criticising Lehman accounting and the bank's auditors Ernst & Young.

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.

Read more:

E
&Y negligent in Lehman audit, report claims

Report
claims E&Y knew about repo transactions

Lehman
CFOs warned of reputation risk

Lehman
assets funneled through UK arm

Related Articles

Is predictive analytics the end of the annual audit?

Audit Is predictive analytics the end of the annual audit?

10h Martin Herron, MHA MacIntyre Hudson
Auditors ‘in the dock’ over Carillion as report calls for Big Four break-up

Audit Auditors ‘in the dock’ over Carillion as report calls for Big Four break-up

5d Emma Smith, Managing Editor
PCAOB sanctions former Deloitte Turkey CEOs over altered documents

Audit PCAOB sanctions former Deloitte Turkey CEOs over altered documents

1w Alia Shoaib, Reporter
KPMG South Africa to review past audit work amid fresh scandal

Audit KPMG South Africa to review past audit work amid fresh scandal

1m Alia Shoaib, Reporter
FRC introduces £10m sanctions for Big Four firms

Audit FRC introduces £10m sanctions for Big Four firms

1m Alia Shoaib, Reporter
Ukraine’s PrivatBank files $3bn claim against PwC

Audit Ukraine’s PrivatBank files $3bn claim against PwC

2m Alia Shoaib, Reporter
Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

Audit Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

2m Alia Shoaib, Reporter
Big Four dominate FTSE 250 audit market in Q1 rankings

Audit Big Four dominate FTSE 250 audit market in Q1 rankings

3m Alia Shoaib, Reporter