The recent revelations about Lehman’s use of
Repo 105 transactions illustrates the extent to which audit reports
can seemingly omit crucial information, a UK House of Commons
Treasury Committee report has said.

Too important to fail – too important to
calls for progress on the committee’srecommendation
that the audit profession ensures audit reports are an effective
tool for investors.

The call was initially made in the report
Banking Crisis: reforming corporate governance and pay in the
, released on 12 May 2009.

The new report notes that company audits
should provide investors with clear and impartial information about
the companies they invest in.

It suggests the current audit process results
in ‘tunnel vision’, where the big picture that shareholders want to
see is lost in a “sea of detail and regulatory disclosures”.

It cites Lehman Brother’s use of Repo 105
transactions as one example.

A recent report from US court-appointed
investigator Anton Valukas alleged Lehman Brothers used Repo 105 to
temporarily move $50 billion off its balance sheets in the second
quarter of 2008, making its financial statements and related
disclosures materially misleading.

Ernst & Young did not challenge the bank’s
use of the technique, which is permitted under the US GAAP standard
FAS 140.