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Are accounting firms bad watchdogs?

Sarah Gardner Mar 16, 2010
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Are accounting firms bad watchdogs?

Sarah Gardner Mar 16, 2010
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TEXT OF STORY

Steve Chiotakis: There’s a lot of criticism being pointed at accounting giant Ernst & Young. That’s after last week’s report on the collapse of Lehman Brothers. The bankruptcy examiner in the case took Ernst & Young to task for not challenging Lehman’s shady accounting practices.

And as Sarah Gardner reports, that criticism is tarnishing the industry’s image.


Sarah Gardner: Ernst & Young signed off on Lehman’s financial statements despite the bank’s use of what the examiner called “accounting gimmicks” that effectively masked billions in debt.

Steven Thomas, an attorney suing Ernst & Young in a separate case, says the big accounting firms are ineffectual watchdogs.

STEVEN THOMAS: If you go all the way back to Enron, you see that in almost every instance where we have numbers on Wall Street causing great harm, there was a certified public accountant who reviewed the numbers and gave them their stamp of approval.

But Randy Beatty, dean of USC’s Accounting School, believes Ernst & Young followed the law. He says Lehman’s risky financial deals, not its auditors, caused its collapse.

RANDY BEATTY: To my mind, the auditors are simply the folks on the sidelines that are trying to provide a snapshot of what’s going on in the corporation.

Yesterday, though, Britain’s top accounting regulator said he’s now investigating Ernst & Young’s Lehman audits there.

I’m Sarah Gardner for Marketplace.

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