FRC says it will not pursue Ernst & Young over Lehman failure
30 January 2013 London
Image: Shutterstock
The Financial Reporting Council (FRC) has decided that no action should be taken against Ernst & Young over the accounting firm鈥檚 auditing of Lehman Brothers.
After Lehman Brothers failed in September 2008, its administrators identified a "significant shortfall in the pool of money held on trust for clients鈥�.
The bank did not properly segregate and safeguard client money as specified by the Financial Services Authority鈥檚 Client Assets Sourcebook (CASS), and the FRC鈥檚 accountancy and actuarial disciplinary board (AADB) was also concerned that money relating to Lehman Brothers鈥檚 prime brokerage, or major wholesale clients, needed segregation.
In turn it was alleged that Ernst & Young was not severe enough on the bank, and that it signed off auditing reports on Lehman Brothers鈥檚 European arm despite its improper segregation of client money.
In October of last year, Lehman Brothers's prime brokerage customers were paid in full following an agreement between the bankrupt investment bank and its European arm.
"Following the conclusion of the investigation, the FRC's executive counsel, Gareth Rees, has decided that no action should be taken against Ernst & Young or any individuals in connection with their conduct in this matter," the FRC said on 29 January.
鈥淓xecutive counsel has decided that there is no realistic prospect that a tribunal would make an adverse finding against Ernst & Young in the UK or members within that firm. The investigation will therefore be closed and no further action taken."
After Lehman Brothers failed in September 2008, its administrators identified a "significant shortfall in the pool of money held on trust for clients鈥�.
The bank did not properly segregate and safeguard client money as specified by the Financial Services Authority鈥檚 Client Assets Sourcebook (CASS), and the FRC鈥檚 accountancy and actuarial disciplinary board (AADB) was also concerned that money relating to Lehman Brothers鈥檚 prime brokerage, or major wholesale clients, needed segregation.
In turn it was alleged that Ernst & Young was not severe enough on the bank, and that it signed off auditing reports on Lehman Brothers鈥檚 European arm despite its improper segregation of client money.
In October of last year, Lehman Brothers's prime brokerage customers were paid in full following an agreement between the bankrupt investment bank and its European arm.
"Following the conclusion of the investigation, the FRC's executive counsel, Gareth Rees, has decided that no action should be taken against Ernst & Young or any individuals in connection with their conduct in this matter," the FRC said on 29 January.
鈥淓xecutive counsel has decided that there is no realistic prospect that a tribunal would make an adverse finding against Ernst & Young in the UK or members within that firm. The investigation will therefore be closed and no further action taken."
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