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January 27, 2011

E&Y chief defends Lehman audit

Ernst & Young (E&Y) chairman and CEO James Turley has defended his firm’s audit of Lehman Brothers saying it complied with US GAAP and that the standard required and allowed REPO 105.

In an interview with Bloomberg, Turley did however say the Lehman Brothers case shows there is a need for the reform of the system and that more disclosure is necessary.

“I think it is clear that a reform of the system was needed and we have seen since Lehman failed a lot of changes in financial reporting standards, disclosure standards, SEC standards around MDN, so we are confident that Lehman both complied with accounting standards, and that is what the investigations have said, and also we are disclosing properly,” Turley said.

A civil lawsuit filed in December by New York attorney general Andrew Cuomo alleges that E&Y “substantially” helped Lehman mislead investors from 2001 until the bank’s collapse in 2008, by approving a move that temporarily reduced Lehman’s debt, giving the impression the bank was in a stronger financial position than it was.

The lawsuit is the first legal action taken by the US government involving the Lehman Brothers’ bank collapse.

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