Lehman audit breakthrough

An agreement by accountancy regulators in the UK and the US has opened the door to a wider investigation of the role played by Ernst & Young in the collapse of investment bank Lehman Brothers in 2008.

The auditor was in charge of examining Lehman's accounting practices, and faces civil fraud charges in the US over a scheme that allowed the bank to hide more than $50bn (£32bn) in short-term debt from its shareholders. The scheme, known as Repo 105, was operated out of London, with approval from a law firm and oversight by Ernst & Young.

A dispute between the US and other countries had blocked American inspections of foreign audit firms since 2008, but the UK's Professional Oversight Board yesterday signed a bilateral information-sharing agreement with the US Public Company Accounting Oversight Board.

European governments had bristled at US demands to let in PCOAB inspectors, without any reciprocal arrangement. The PCOAB had been barred from sharing information from the US with foreign regulators until Congress passed reforms last year.