Friday 12 March 2010

E&Y could the Big 4 reduce to the Big 3?

E&Y, the global accountancy firm have not come out well of the investigation into the Lehmans debacle. Their Audit for 2007 is under severe questioning as to how the company was allowed to remain a going concern.

Lehman itself will see one or two of its exectuvies in Court I would think, the issue of this Repo 105 looks like a tool for accounting fraud of similar nature to what Enron was doing in 2002. In fact, the cases do look similar, no doubt Nick Drew will comment on this later.

If E&Y goes the wya of Andersen then we will be left with very few large global accounting firms indeed, just PWC, Deloitte and KPMG.

Also it is interesting in reading the various reports how Citi and JP Morgan helped to bring Lehmans down by removing collateral at key times; and people say Wall Street is one big gang....

What though it most noticeable it the lack of criticism for the Fed and the the US Government for allowing the regulatory frameowkr and market environment to become so distorted.

I really want to see some people in jail for Fraud over this. I don't accept that we can have this huge financial crisis based on such mismanagement and grred and yet no one end up in jail. Same in the UK, it is sad to see hwo due to the complexity of the problem, no prosecutions are being brought.


A Swiss Gnome said...

Ask yourself who was auditing the likes of RBS and HBOS. Without their repeated rights issues and then the government bailout they were equally insolvent. No way they should have got a clean opinion.

Steven_L said...

I don't think they will nick any bankers - just a hunch.

If they nick one of them they'd have to start nicking them all really and it's not going to happen.

CityUnslicker said...

SG - Quite agree, RBS got a clean opinion just weeks before a £12 billion rights issue.

SL - Doesn't make it right though.

Anonymous said...

E&Y were auditors to Anglo Irish Bank also

Nick Drew said...

a hothouse institution obsessed with growth

yep, that sounds familiar !

I shall take a look

James Higham said...


Interesting firm - I'm wondering why anyone would leave them.

mark said...

I would be surprised if there was a scintilla of difference between any of the big 4.

If E&Y goes then so must the rest leaving you with the 'Big 0'.

What are these accountant guys supposed to do? Governments and regulators are currently actively encouraging them to sign-off on fictitious accounts.

The very last thing that governments and regulators want is to have accountants damage confidence by pointing out that most of the major players in the financial system are insolvent.

If governments and regulators permit financial institutions to hold huge chunks of their assets and liabilities off balance sheet and to 'mark to myth' the remaining assets held on balance sheet - then to turn around in say 2 or 3 years time in shock and horror and start shooting the accountants would seem a bit off - unless you also prosecute the bankers and regulators and lawyers and politicians all of those who colluded in the whole sorry mess.

(and I'm not an accountant by the way)

Nick Drew said...

Governments and regulators are currently actively encouraging them to sign-off on fictitious accounts

agreed; but they (the whole lot of 'em) were signing off all manner of rubbish that passed across their desks long before the current crisis

Andersen's difficulties with Enron were rather extreme, but hardly unique

Steven_L said...

Doesn't make it right though

Maybe, but we seem to inhabit a bit of a moral vacuum these days anyway.

In terms of UK prosecutions for fraud, FS regulation - especially the 'soft law' rulebooks - is drafted so subjectively (ironically they usually do this to 'future proof') that all the various obligations can probably be presented as contradicting each other in any given situation - making proving the dishonesty element of fraud all but impossible without some incriminating documentry evidence.

There is a similar paradox in all business regulation. Whitehall are so obsessed with trying to make regulators 'consistent' and have created that many subjective codes of practice, guidance etc, that they could pretty much justify any enforcement decision they want to.

For example regulators now have to consider 'economic progress' when making policy on enforcing regulation.

Budgie said...

"Bankers" (undefined, it appears) are not prosecuted for the same reason Major did not fire Lamont after ERM meltdown: because it would lead back to who was really responsible. Major in 1992 and Brown now.

Anonymous said...

Wasn't Andersens found not guilty many years after it ceased to be relevent?


Merceron said...

Wonder if Fuld will go to jail over this. Linklaters didn't look too good either.

P.S. Quite a lot of spelling mistakes in the post.

Anonymous said...

Mereron, depends on the mood at the time of his trial. If it has been last year or just after the collapse like the Enron guys's trial then yes. Now? Maybe on some trivial technicality blown up to be some heinious crime.


Anonymous said...

E&Y are in serious trouble with this one I think. See the link below for further details. A whistleblower even asked them to investigate the repo and E&Y didn't even bother