John Lanchester, writing in last Saturday’s Guardian, explained the essence of the Repo 105 deals which Lehman Bros did to create the false impression in their accounts that the company was fit and well. And Lehman’s accountants, Ernst & Young, were happy, as Lanchester explained, to ‘sign off on the deal … It was all within the rules.’
But it wasn’t. Company accounts, in Britain and in America, are intended to reflect a true and fair picture of the company’s position – otherwise what is their point? It doesn’t matter that custom and practice has become so fraudulent in financial circles. The only reason why auditors are still required in Britain to certify the accounts as “true and fair” is to be sure that the various clever creative ways of accounting to disguise the true picture, which in themselves may be perfectly legal, are not used to deceive. At the end of the day the accounts must give a “true and fair” account. If audited accounts are not “true and fair”, then the accountants responsible, and the auditors who signed them off, should be struck off and locked up.