Jun/100
European Creditors May Receive Payout
The U.K.’s accounting watchdog is investigating Ernst & Young over its role as auditor to Lehman Brothers in the months leading up to the investment bank’s collapse.
In a statement, the Accountancy & Actuarial Discipline Board said it’s probing the firm’s conduct in relation to the preparation and audit of Lehman’s accounts for the fiscal year ended Nov. 30, 2007. It’s also reviewing the accounting treatment of transactions known as “repo 105″ and “repo 108.”
Lehman used these transactions to temporarily lower its apparent leverage and remove as much as $50 billion from its balance sheet, according to a report by a court-appointed examiner earlier this year. See story on how repo 105 worked.
The same report by Anton Valukas said there was evidence to support a possible professional malpractice claim against Ernst & Young and that claims might also be possible against some of Lehman’s competitors, including J.P. Morgan /quotes/comstock/13*!jpm/quotes/nls/jpm (JPM 38.48, +0.23, +0.60%) and Citigroup /quotes/comstock/13*!c/quotes/nls/c (C 3.97, -0.02, -0.50%) over collateral demands they made as Lehman began to fall apart. See story on potential Lehman lawsuits.
“Ernst & Young’s audit opinion stated that Lehman’s financial statements for that year were fairly presented in accordance with the relevant accounting standards, and we remain of that view,” the audit firm said in a statement.