Ernst & Young faces US investigation

By Benjamin Chiou

Mon 10 Jan 2011

LONDON (SHARECAST) - Accountancy firm Ernst & Young is facing an investigation into its handling of Lehman Brothers accounts now that the path has been cleared for US authorities to examine UK auditors.

Since 2008, the US Public Company Accounting Oversight Board had been prevented from sharing documentation outside the US, stopping a probe into Lehman use of Repo 105 transactions overseen by the UK firm.

However, due to the settlement of a jurisdictional dispute on Monday, the regulator will be able continue its work concerning the lender collapse more than two years ago.

Last month, New York attorney general Andrew Cuomo accused Ernst & Young of committing major accounting fraud?in concealing as much as $50bn of assets from the balance sheet to hide debt.

The Repo 105 transactions that Lehman used were short term repurchase agreements where a loan is classified as a sale, and then contributed towards debt repayments.

This is reflected on balance sheets, showing a company to be less volatile than it is. The group concerned would then be able to repurchase original assets once results are published.

A spokeswoman from Ernst & Young said the firm is cooperating with UK and US authorities, but stands by the audit opinions issued in relation to the accounts of Lehman Brothers, according to Bloomberg.