Probe launched into E&Y audit of Lehman Brothers

A British regulatory body has launched a probe into global consultancy Ernst and Young's audit of the Lehman Brothers' financial statements in the months prior to the collapse of the US investment bank.

The Accountancy and Actuarial Discipline Board (AADB) has begun an investigation under its accountancy scheme into the conduct of members and Ernst & Young LLP, as auditors of Lehman Brothers International (Europe), it said in a statement.

The preparation and audits of the financial statements of Lehman Brothers Holding Inc and UK operations, including Lehman Brothers International (Europe), for the year ended November 30, 2007, would be investigated, the statement added.

It said that the board would also probe, "the use and accounting treatment of transactions known as 'Repo 105s' and 'Repo 108s' by Lehman Brothers Holdings Inc and UK operations, including Lehman Brothers International (Europe)."

The AADB is an independent investigative and disciplinary body for accountants and actuaries in the UK.

The Financial Times cited people with knowledge of the inquiry as saying that the probe was triggered by the March publication of a report into Lehman's collapse by Anton Valukas, a US court-appointed bankruptcy examiner.

The daily also quotes E&Y as stating, "We will co-operate fully with the AADB investigation."

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".