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FRC drops Lehman case against Ernst & Young

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30th Jan 2013
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The Financial Reporting Council (FRC) has abandoned the case against Ernst & Young over its role as auditor of collapsed US investment bank Lehman Brothers.

Despite various lawsuits and regulatory probes, Gareth Rees QC, FRC’s executive counsel, decided that “no action should be taken against E&Y or any individuals in connection with their conduct in the case.”

A spokesman for E&Y responded to the decision, saying it “confirms our belief that the quality of our audit work met with the appropriate professional standards”

The long-running case centred on the discovery by administrators PwC of a shortfall in the pool of money held on trust for clients, which should have been segregated and safeguarded in accordance with the rules set out in CASS.

On 9 September 2010 the Accountancy and Actuarial Discipline Board (AADB) decided that the matter should be investigated.

At the start of the investigation it appeared Lehman had failed to comply with CASS rules and that E&Yhad signed off their report, confirming the bank was in compliance.

During the course of the investigation, the FRC team obtained and reviewed E&Y’s audit files and hard copy documentation, and also interviewed E&Y audit team staff.

After referring the case “to an expert”, Rees concluded that there was “no realistic prospect that a tribunal would make an adverse finding against E&Y in the UK or members within that firm.”

Back in March 2008 there were rumbles of trouble as the US sub-prime housing market left investment banks with toxic assets they couldn’t get rid of, resulting in Lehman Brothers writing down US$1.8bn on its holdings.

When Lehman filed for bankruptcy later that year, AccountingWEB.co.uk asked whether the Big Four would survive the credit crunch, with fingers pointing towards E&Y’s audit of Lehman Brothers.

A year-and-a-half later and E&Y was in the spotlight again, following the publication of a 2,000-page examination of the “accounting gimmicks” used to whisk some US$50bn in toxic assets off the Lehman balance sheet. US court examiner Anton Valukis concluded that stakeholders in Lehman's remains could seek compensation from the auditor.

By December 2010, following the Accountancy and Actuarial Disciplinary Board’s investigation, New York attorney general Andrew Cuomo accused E&Y of accounting fraud, claiming the firm was complicit in the “surreptitious removal of tens of billions of dollars of securities from Lehman’s balance sheet in order to create a false impression of Lehman’s liquidity, thereby defrauding the investing public”.

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By nogammonsinanundoubledgame
03rd Feb 2013 16:46

There is I think a not subtle distinction between ...

... "a decision not to proceed" (as described in the body of the narrative) on the one hand and on the other "the respondent being cleared" (as the header suggests).

With kind regards

Clint Westwood

[EDIT] subject header has since been edited rendering this post otiose.

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By The Black Knight
01st Feb 2013 12:51

But equally

But... equally if there is no case to answer then it should not leave a stain on good character.....Wanting to pursue and being able to find anything to pursue are also important?

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By The Black Knight
01st Feb 2013 15:16

Can You? / accountancy web show accounts?

So we can all have a butchers?

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By The Black Knight
01st Feb 2013 15:50

have not checked yet but may be available on charity commissioners website for free?

.....will have a read!

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By The Black Knight
01st Feb 2013 16:24

There are some shocking reports filed at companies house, some of which are just the filing of evidence of criminal offences under the companies acts and or the taxes acts.

There are many fictitious directors and company secretaries or at least using pen names...which is quite amazing in this day and age.

You are quite right Companies house and HMRC do not care..as they have always had sufficient willing contributors of tax to satisfy their wasteful requirements.

Maybe someone will soon take the deficit seriously and wake up to the gold mine available by looking at the accounts. Although I think it is because they do not understand the accounts combined with general apathy which leads to the problem.

Either that or there is corruption within....perhaps there is another news of the world type story to come out. After all if you can make payments to police officers then why not HMRC?

 

 

 

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By dsefton
01st Feb 2013 17:02

Off topic

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By Supertorben
01st Feb 2013 17:12

I have just received my copy of Economia, issue 13, in which I note that Nick Land proudly states that he is a non-executive of the FRC. He also chairs the Audit and Assurance Council, the successor to the APB. Of course, he needs no introduction, having been executive chairman of Ernst & Young for 11 years.

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By dsefton
03rd Feb 2013 17:22

FRC drops Lehman case against Ernst & Young

The subject line above is the topic to be covered here. Who the hell cares about your case?

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By dsefton
04th Feb 2013 11:55

Now, that's more like it.

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