Charlie Gasparino reports that an oversight board, created under the Sarbanes-Oxley accounting reform act of 1992, has launched an investigation into accounting firm Ernst & Young and its role in Lehman Brothers’ (LEHMQ) bankruptcy.
FBN: “The Public Company Accounting Oversight Board [PCAOB], which can investigate and discipline public accounting firms, has launched an inquiry into Ernst & Young following a bankruptcy examiner’s report that accused the firm of “professional malpractice” in its approval of a controversial accounting technique used by Lehman as it slid into insolvency. The technique known as Repo 105 helped mask the deteriorating nature of Lehman’s balance sheet.
The oversight’s board inquiry is yet the latest investigation to hit Ernst & Young over its role as Lehman’s auditor, which was highlighted in the report issued by Lehman bankruptcy examiner Anton Valukas last month. As reported by FBN, the Securities and Exchange Commission, as well as UK regulators, are looking at the accounting giant’s activities.
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If [the board]…decides to bring a case against Ernst & Young over its role in the Lehman implosion it would clearly be the most high-profile enforcement action since it began bringing cases in 2005.
According to Gasparino, Ernst & Young has vehemently denied that the firm has done anything wrong.
