If you’ve ever worked at a Big 4 firm, you’re aware that when big news hits the MSM, A) it’s never good and B) there is typically some sort of communication from management reiterating the firm’s position on the matter, everything is cool, thanks for your hard work, etc. etc.
With last week’s revelation of the bankruptcy examiner’s report on Lehman Brothers, E&Y seems to be following this protocol as it relates to the troops on the ground. As you would expect, leadership is keeping their heads about this while in the background in-house counsel is likely engaged in all-night smoky room strategy sessions.
We checked in with a few of our Ernst & Young sources to get an idea of what people were thinking and so far, there doesn’t sound like there are any signs of panic (yet!).
From one source:
Overall reaction from what I gathered is pretty muted. We did get a call from some of the higher-ups saying that we reviewed our work and that we feel that our audit was completely adequate and that Lehman’s failure was nothing more than the same systemic failure of two of the other major banks and that we plan to defend ourselves vigorously. Presumably, the examiner’s report really didn’t give any ah-ha moments….
[I]s there a possibility of a payout at some point? It’s possible. Are we worried that we’re the next Arthur Andersen? I don’t think so.
So at least on the surface, E&Y leadership is communicating that what came out in the report wasn’t surprising and that the defense of the firm’s position will be, as usual, vigorous.
That doesn’t of course stop the speculation:
I heard from a technical guy there was some concern because they didn’t issue a going concern opinion [for the previous audit].
And as you might expect, “I heard that [the firm] helped cook the books and is deep shit,” with the book cooking being arguable but pretty hard to prove and the “deep shit” aspect being a given.
Some Ernst & Young partners are probably losing sleep just thinking about the potential liability involved here but eventually they’ll get over it (until something else comes up).
No partner worth their salt got admitted to the partnership focusing on the downside. The problem is that when people use consistently use words like “deceptive” and “misleading” to describe Lehman’s accounting this reflects poorly on the firm since they were comfortable with the treatment.
And because it’s still busy season for a lot of people, they are focused on the shitstorm that currently surrounds them, not one that will likely drag on for years after they’ve left the firm (voluntarily or otherwise).
Anyone with more insight or thoughts on the matter, get in touch with us and we’ll keep you updated on the chatter inside E&Y.
Quality in Everything We Do….LOL
Wah wah wah. You're such a loser. If managers and partners did not like you, then you deserved to be fired idiot. At EY, as long as you do your work, they always like you. You were probably one of those entitled douches who refused to do some things and sucked at others. Take your crying elsewhere.
In regards to the article (see what I did there? I'm actually posting on the topic), I fail to see where EY is “in deep shit”. A company can collapse and still be in compliance with GAAP. Audits do not address the type of investments the firms make, only that the financial statements present fairly. I would have expected better from Caleb, but over the past few months he's shown that he's just as bad at fear mongering as the MSM. OOOHH! BIG STORY! Oh wait, its all in compliance with GAAP. WHO CARES! EY IS IN DEEP SHIT!
Please identify the accounting improprieties before making your outlandish claims.
I have been blogging about this all week, in regard to Lehman Japan, where some of the Repo 105 activity originated. If we take Valukas' Examiner's report as a given, the Lehman Japan balance sheet may have been GAAP-compliant. But it would have shown a very thin capital position. This is because the Repo 105 fraud was meant to hide liabilities (not assets as the MSM tends to report).
I was not impressed with the staffing Lehman Japan—especially since I had to explain the yen carry trade to officers of the Fixed Income Division product control. But it makes no sense why E&Y's Japan office wasn't all over the issue of thin capitalization. After Japan's “Big Bang” brokerage reforms, even, there were criminal penalties in some instances of being outside minimum net capital.
Why E&Y's gross screw-up does make sense is if you believe that the Big Four are a cartel that needs to be broken up. Or even that rotation of auditors needs to become mandatory. Crap work would be exposed much more quickly in either case, and the overall quality of talent in the profession would rise.
You may want to brush-up on your accounting skills because round-tripping is not in compliance with GAAP, hence the finding of malpractice by E&Y and no US law firm wanting to rep the repo sales. I would recommend not posting accounting comments if you are not familiar with GAAP.
Be a dear and reference examples of “fear mongering.” Reporting on the thoughts of people insider E&Y is hardly worth the Dick Cheney treatment. Oh and if you can explain how this (EY/Lehman) is NOT a big story, I'm all ears.