A civil complaint was filed recently by Andrew Cuomo, the outgoing New York attorney general, accusing Ernst & Young of helping Lehman Brothers mislead investors. The state claims Lehman’s auditors aided in a fraud, using Repo 105 transactions to make the books look healthier than they actually were.
Ernst & Young obviously maintained that they did nothing wrong. Well technically they are right, they did comply with Generally Accepted Accounting Principles, or GAAP.
The crux of the case should be the intent. Recently there has been news about various organizations being caught in accounting fraud, and in most cases the auditors had signed off on the financial statements. Should the auditors be responsible for just ensuring compliance with accounting rules or should they be held accountable to ensure that their clients’ intent is not to hide material facts.
This definitely is a case accountants all over the world will keep a close eye on. This might define how accounting world would function in the future.
