June 16, 2010 / 12:14 AM / 9 years ago

UK watchdog launches Lehman audit probe

LONDON, June 16 (Reuters) - Britain’s accounting watchdog has launched a probe into whether Ernst & Young [ERNY.UL] properly audited the books of Lehman Brothers before the U.S bank went bust in September 2008.

The Accountancy and Actuarial Discipline Board (AADB) has started an investigation into the Ernst & Young’s final audit of Lehman Brothers’ UK operations for the year ending November 30, 2007, it said in a statement on Wednesday.

The regulator will also examine the accounting treatment of the controversial “Repo 105” and “Repo 108” transactions used by Lehman that helped to temporarily lower the struggling bank’s apparent leverage by $50 billion.

The accountancy group came under fire last March when a report from U.S examiner Anton Valukas on the collapse of Lehman said there was sufficient evidence to support a possible claim that the firm’s auditor, Ernst & Young, had been “negligent.”

E&Y said it would fully cooperate with the AADB’s 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,” the company said in a statement.

Reporting by Caroline Copley; Editing by Bernard Orr

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