financeguy
offlineMember
http://www.zerohedge.com/article/deconstructingfuncting-ernst-young
\nJust curious as to what you guys think about this recent news?
\nHaha, I hope everyone is prepared for the horrible reputation which a CPA is going to get. Enron and Worldcom is nothing compared to what is going to come from these financial institutions.\n
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Jeff - another71.com
offlineadmin
yeah...it looks bad...\n
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Atrus
offlineMember
Good video Shawna - that helped me to understand it.
\nObviously I'd like to believe that everything was done properly as my paycheck comes from said firm. Also, I understand the media's need to make this the next "Enron/Arthur Anderson" situation - my wife is a journalist, and I know how that industry works.
\nI think this is probably the most appropriate summation of the implication of this situation that I have read so far:
\n"Ernst & Young said in a statement: Our last audit of the company was for the fiscal year ending November 30, 2007. Our opinion indicated that Lehmans financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles (GAAP), and we remain of that view.
\nAfter an exhaustive investigation the examiner made no findings in his report that Lehmans assets or liabilities were improperly valued or accounted for incorrectly in Lehmans November 30, 2007, financial statements.
\nAccording to the examiners report, Ernst & Young had just started planning for its year-end audit of Lehman, when the firm collapsed into bankruptcy.
\nThey are going to say, hey, we got hoodwinked like everybody else, Sabino said."
\nPulled from here: http://www.forum4finance.com/2010/03/14/was-lehman-ernst-youngs-enron/
\nSeems like almost every other article or commentary fails to point out that EY didn't audit the "tainted" set of books. The real issue seems to be whether EY appropriately handled a whistleblower situation in 2008.
\nJust also want to state that I know very little about this and work in a completely different service line of the firm - therefore, I essentially know nothing and you all have probably followed this more closely than I have. I'm certainly not representing the firm in any way, shape or form - just stating my opinion(s).\n
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Atrus
offlineMember
I did read it financeguy, it was the first article I read on it.
\nMy only issue with the article is that it's very one-sided (obviously) and pointing out that EY had all these misc. issues in the past. Find me a large firm that hasn't - litigation is the cost of doing business in this service industry. It's going to happen whether the firm was in the wrong or not. PwC, KPMG, Deloitte - they all have had similar situations erupt, I get daily newsfeeds of those items. It's a standard occurrence. The difference of this particular issue is the scale; I'm not denying that this is a HUGE client and a very large-dollar issue.\n
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financeguy
offlineMember
yeah, I'm not quite sure how you got that out of the article. The entire article is solely about Lehman and more specifically Repo 105 and E&Y audit on Lehman. There is no talk about E&Y issues in the past. I can see how it is one sided, however it is filled w/ statements and facts from a 2200 page report, not too mention they state that there is clearly illegal conduct on the part of Lehman.
\nAlso, are you aware of Senator Kaufman's reaction to this? Here is one excerpt:
\n"Mr. President, last Thursday, the bankruptcy examiner for Lehman Brothers Holdings Inc. released a 2,200 page report about the demise of the firm and which included riveting detail on the firms accounting practices. That report has put in sharp relief what many of us have expected all along: that fraud and potential criminal conduct were at the heart of the financial crisis."
"Kaufman calls for a "a thorough investigation, both civil and criminal, to identify every last person who had knowledge that Lehman was misleading the public about its troubled balance sheet and that means everyone from the Lehman executives, to its board of directors, to its accounting firm, Ernst & Young. Moreover, if the foreign bank counterparties who purchased the now infamous "Repo 105s" were complicit in the scheme, they should be held accountable as well."
\n\nThis is simply not the media trying to make this the next Enron/Arthur Anderson scandal. hell, this is barely even in the mainstream media. This is on a much bigger scale than Enron. Don't get me wrong, I'm sure there are plenty of excellent employee's at E&Y, such as yourself. However, I don't doubt for a second that there is fraud and corruption in not only E&Y, but nearly all of the biggest public accounting firms.
\nAnd, if it isn't fraud/corruption on the part of accounting firms, is incompetence any better?
\nAUD is the only portion of the exam I have passed so far. I have never actually worked an audit, so therefore, I only know theory. I know the real world is usually much different than ideal theory of how something is supposed to work, so it is possible that I have a skewed viewpoint. If I were an E&Y employee, I would keep a very close eye on the story. I doubt this thing is going to go away quietly.\n
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Atrus
offlineMember
Totally agree that it's not going away quickly or quietly, and I also agree no matter the organization, the bigger you get the better chance some bad apples end up in your team. That goes for Lehman, EY, or anyone else.
\nAnd, actually, my bad - you're correct. The article remains focused on the REPO issue. The comments, however, certainly don't. Just look at Tethys comments.
\nI'd like to believe EY did the right thing and was a "victim" as well, but I live in the real world and also know things go wrong. I'll be staying tuned to see what comes of it.\n
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Guccimane
offlineMember
fiananceguy; that is great you passed Audit but the Audit section of the CPA is for accountants entering the profession and by no means comparible with this issue
\nall the CPA does is offer the public some assurance that we meet the basic level of knowledge to protect the publics best interest\n
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financeguy
offlineMember
Guccimane, I agree, which is why I gave my disclaimer about theory vs real world. Regardless, CPA's must abide by GAAS, and when the lawsuits start coming in, and possible criminal motions filed, you will find that they did not adhere to GAAS.
\nThe head auditor claimed that they didn't know what Repo 105 is. You and I may have differing definitions, but to me that is flat out incompetence. And whether us CPA's or soon to be CPA's like it or not, this is going to be a shockwave in the industry.\n
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financeguy
offlineMember
Well I think rampant corruption runs through our government, not to mention incredible incompetence. Plus, I think it is wallstreet that gives orders to the government, and not the other way around. The SEC, Moody's...all the rating agencies...they are all corrupt.
\nOur government is just growing bigger and bigger and taking part in more and more, so I wouldn't be shocked if they took over auditing.
\nObviously it is not just the auditors at fault here. There are many parties at fault. And I don't think it is a whole lot different internationally either. Just take a look at Greece.\n
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NY GT girl
offlineMember
Well there is a HUGE difference between only having four big banks since the others don't have enough assets and are insolvent and losing an accounting firm over problems every firm has experienced. KPMG wouldn't be around if the SEC and other regulatory bodies weren't concerned with the concentration of power between just 3 big accounting firms. They have been in between a rock and a hard place more than once over the past few years.\n
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financeguy
offlineMember
You might want to do a bit of research on the banks. There are thousands of smaller banks in this country that are much more capitalized than C, BAC, WFC, and JPM. If FASB had not changed the mark to market rules last summer, these 4 banks would most likely be insolvent.
\nMy point is, the SEC is not the grand daddy watchdog that you think it is. Lehman going down is so much bigger than Enron. There are going to be so many lawsuits. Someone is going to have to take the fault. The big bankers run this country...E&Y will go down before any big bankers do. Besides, Geithner was involved w/ the whole Lehman fiasco...he won't let his banking buddies get taken down.
\nKMPG surely has committed its faults, but has not been involved in anything on this scale.\n
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NY GT girl
offlineMember
I do think EY will end up being the one taking the blame and being sued thanks to everything with Lehman, but that doesn't necessarily mean they will go under. It will be interesting to see how this plays out.\n
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financeguy
offlineMember
Well, that depends where you go for your news. The mainstream media is controlled. GE owns CNBC, Dow Jones owns Fox, etc. The media only wants to paint a picture of things are doing good. They want people to spend money.
\nIf you read financial blogs, here are a few really good ones:
\nhttp://market-ticker.denninger.net/
\nhttp://www.zerohedge.com/
\nhttp://globaleconomicanalysis.blogspot.com/
They update daily. You will get a ton of info and facts that you will never hear in the MSM anymore. They will be all over anything and everything that comes out of this whole scandal.\n
\nHaving lived through the KPMG settlement with the DOJ and the aftermath, I really feel for anyone currently employed with E&Y. Also both of the KPMG offices that I worked in had many of the leftover AA people from the Enron fiasco. There is nothing fun about what the E&Y folks are going through right now. I mean really what did the tax staff at AA in Boise, or Salt Lake City, or Denver, or Seattle have to do with the Enron Audit???? But they still had to deal with potential job loss and office takeover, I know some who lost their jobs in the office takeovers. This is a terrible situation for many, many people who had absolutely nothing to do with the E&Y audit of Lehman Bros.\n
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Trouble
offlineMember
For those who posted wondering why it has been in the news so much lately (rather then when Lehman collapsed over a year ago) is because only recently has the court appointment attorney for Lehman released his 2,200 page detail of why Lehman collapsed and he points fingers at E&Y.\n
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financeguy
offlineMember
http://www.zerohedge.com/article/its-ey-fires-back-says-it-was-all-lehman-managements-fault
\nhere is an update for those interested.\n
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