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This is Part 1 of my commentary on the letter that Ernst & Young recently sent to Audit Committee members defending themselves against the findings in the Lehman Bankruptcy Examiner’s report. The Bankruptcy Examiner, Anton Valukas, found “colorable claims” against EY.
I’ve been quoted today in a stellar piece by Paul Barrett, an Assistant Managing Editor at Business Week on Anton Valukas. Valukas is the Lehman Bankruptcy Examiner, a Chicago guy, and Managing Partner of law firm Jenner & Block.
DUBIOUS BEHAVIOR
What Valukas brought to the endeavor was a no-nonsense lack of deference toward Wall Street game playing, says Francine McKenna, a former director at PricewaterhouseCoopers. “That’s a Chicago thing,” adds McKenna…
The leadership of the Big 4 audit firms – Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers – are scared witless.
Ernst & Young is circulating a point-by-point response to the Lehman Bankruptcy Examiner’s Report to Audit Committee Members. In the letter, EY attempts to defend their position in more detail.
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Ernst & Young, the audit firm, had a long and lucrative relationship with Lehman Brothers. So it comes as no surprise to me that EY had a hard time acting independently of their “sticky” client. EY may have ignored a lot of venial sins over almost ten years until “the drug we’re on,” as Lehman’s McDade called the now notorious Repo 105 transactions, added up to the mortal sin of accounting manipulation.
Mainstream journalism is in desperate need of radical visionaries, yet the industry continues to be led by people who are part of the problem rather than a source for the solution.
My new column is up @Going Concern.com
“…I don’t envy today’s professors trying to teach the old-fashioned accounting skills in the electronic environment – closing checklists, regular balance sheet reconciliations, journal entry sign-offs, backup documentation requirements, managerial review of financial statements, and proper reviews and approvals of estimates and analytics. These are the Sarbanes-Oxley and the [...]
The way I see it, the in pari delicto doctrine is being used like a pair of needle nosed pliers by audit firm defense lawyers to diffuse the bomb – huge liability for some of the biggest frauds in history. The in pari delicto doctrine attempts to pull the auditors’ tails from the fire by excusing any of their guilty acts due to the approval of those acts by potentially equally guilty executives.
 Francine McKenna (@retheauditors) has more than twenty-five years of experience in consulting and professional services including tenure at two Big 4 firms, both in the US and abroad. Look for my column, "Accounting Watchdog" at Forbes.com and "Accountable" at American Banker. For more information, click "About" at the bottom of this page. Your firm can sponsor this specialized news site. For more information contact Francine McKenna, fmckenna@mckennapartners.com |
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