Accounting for a Banking Collapse; City FOCUS

Daily Mail (London), March 16, 2010 | Go to article overview

Accounting for a Banking Collapse; City FOCUS


Byline: Rob Davies

THE spotlight in the financial crisis blame game has fallen largely on champagnequaffing bankers, blinkered regulators and politicians obsessed by a 'light touch' approach to financial regulation.

Until last week, the less glamorous world of auditing had emerged from the fallout relatively unscathed.

But the publication of a 2,200-page report by US lawyer Anton Valukas into how Lehman Brothers hid its proximity to the abyss has placed its auditor, Ernst & Young, firmly in the firing line.

Valukas highlighted Lehman's repeated use of a practice called 'Repo 105', which saw it temporarily sell instruments in the lead-up to its quarterly results, allowing it to quickly generate cash to reduce apparent levels of leverage dramatically.

The bank then bought the assets straight back, a procedure it used to hide [pounds sterling]33bn in illiquid assets, which it channelled through its offices in London, where accounting standards make the practice easier. Despite concerns raised with E&Y by whistleblowers within the bank, the auditor signed off on the 2007 accounts and Lehman continued to use Repo transactions into 2008.

Despite Valukas's assertion that there is a 'colourable case' for E&Y to face legal action for malpractice and legislation, the firm protests that Lehman's accounts 'were fairly presented in accordance with Generally Accepted Accounting Principles'.

So if the accounts were 'fairly presented' - despite hiding serious problems at the heart of a systemically important bank - could it be global accounting standards and the audit process as a whole that need an overhaul? 'There's no doubt that the role of auditors has to evolve,' says Steve Priddy, director of technical and policy research at the Association of Chartered Certified Accountants.

'They have to think about the risks that organisations run, the assumptions behind underlying business models and the effectiveness of corporate governance.' For that process to begin, says Priddy, there needs to be a new set of international accounting standards with teeth, to abolish the regulatory arbitrage under which Lehman used UK jurisdiction to perform accounting magic tricks prohibited in the US.

Reform will no doubt be on the agenda when Sir David Tweedie, chair of the International Accounting Standards Board, meets European finance ministers this week. The IASB has plenty to chew over. E&Y was not alone in signing off the 2007 accounts of institutions that spectacularly fell from grace the following year. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Accounting for a Banking Collapse; City FOCUS
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.