Ernst & Young said that its last audit of Lehman was “fairly presented” according to accounting rules.

But a report prepared for the United States Bankruptcy Court examiner, Anton Valukas, states:

“certain of Lehman’s officers breached their fiduciary duties by exposing Lehman to potential liability for filing materially misleading periodic reports, and Ernst & Young was professionally negligent in allowing those reports to go unchallenged,” BBC

That in large part relates to the use of Repo 105 transactions by Lehman in the run up to its collapse. Valukas alleges that Lehman used the “accounting gimmick” to make it appear as if it had off-loaded risky assets and reduced its balance sheet… To the tune of $50 billion – which had a large and material effect on its leverage ratio, bringing it down from 13.9 to 12.1.

Check out the controversey over Lehman’s ‘advice shopping’ in order that it could find a way to use Repo 105’s legally.

And how Dick Fuld fared following the publication of this report.