Second probe into E&Y over Lehman Brothers collapse

City A.M. Reporter
THE accounting watchdog yesterday opened a second investigation into auditor Ernst & Young (E&Y) over its auditing of failed US investment bank Lehman Brothers.

The probe will examine what E&Y told UK regulators about how Lehman Brothers was complying with client asset protection rules.

“The Accountancy and Actuarial Discipline Board (AADB) has begun an investigation under its accountancy scheme into the conduct of Ernst & Young, auditors to Lehman Brothers International (Europe),” the accounting watchdog’s board said.

The board has powers to impose sanctions ranging from a reprimand to unlimited fines and withdrawal of registration to operate.

The new probe will look at what E&Y reported to the Financial Services Authority (FSA) about Lehman’s compliance with the FSA’s client asset rules, which govern the protection of client money.

The probe by the AADB, which is part of the Financial Reporting Council (FRC), a regulator, covers the year that ended 30 November 2007. The board opened its investigation after the FSA raised some issues.

Lehman collapsed in September 2008, bringing the global financial system to its knees and leading to a round of sweeping regulatory reforms.

E&Y, one of the “Big Four” global auditors, confirmed it has been approached by the AADB in relation to reporting on client assets. “We will cooperate fully with the investigation,” the accountancy firm said .