Lehman Case Hints at Need to Stiffen Audit Rules - Floyd Norris, NYT

[Bozita]

"Hints" is too mild. "Screams" would be more appropriate.


HIGH & LOW FINANCE
Lehman Case Hints at Need to Stiffen Audit Rules
By FLOYD NORRIS
Published: July 28, 2011

The company misled investors and its officers and directors may be held liable. But the company’s auditor seems likely to escape any responsibility for an audit that wrongly concluded the company’s financial statements were completely proper.

That, anyway, is the conclusion a federal judge has reached regarding Lehman Brothers. The judge said this week that it appeared Lehman had violated Generally Accepted Accounting Principles, or GAAP, even if it was in technical compliance with accounting rules. But he threw out a claim against Ernst & Young, whose 2007 audit certified that Lehman had followed GAAP.

The ruling ought to raise a few eyebrows at the Public Company Accounting Oversight Board, which sets auditing standards and regulates auditing firms. If the Lehman audit was in compliance with the auditing rules, it is time to review the rules.

A little history: As the financial position of Lehman Brothers grew more and more perilous in 2007 and 2008, the company assured investors it was reducing its leverage by selling assets. That was, to put it ever so gently, a lie.

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http://www.nytimes.com/2011/07/29/business/in-lehman-case-a-hint-that-audit-rules-are-lacking-floyd-norris.html?_r=1&ref=business&pagewanted=all