(Bloomberg News) Questions raised by a bankruptcy examiner's report on the September 2008 collapse of Lehman Brothers Holdings Inc. prompted regulators to take a closer look at oversight of company audits, the U.S. Securities and Exchange Commission's top accountant told lawmakers.
"We have taken the bankruptcy examiner's report extremely seriously," Chief Accountant James L. Kroeker said today at a Senate Banking Committee hearing on the role of the accounting profession in preventing another financial crisis.
Kroeker described as "chilling" the March 2010 report by Jenner & Block LLP Chairman Anton Valukas, which raised concerns that SEC officials may have known about problems at Lehman before it sparked a global credit freeze by filing the biggest bankruptcy in U.S. history.
Officials in a now-defunct SEC Trading and Markets unit that oversaw major investment banks "were aware of concerns about liquidity pools" and hadn't widely shared them across the agency, Kroeker said.
"It's a very serious observation in that report, but it has been addressed," Kroeker said.
The SEC shut down the Consolidated Supervised Entities program in 2008 after Goldman Sachs Group Inc. and Morgan Stanley--the only firms remaining under its jurisdiction--became bank holding companies supervised by the Federal Reserve after the collapse of Lehman and the sale of Merrill Lynch to Bank of America Corp.
James R. Doty, chairman of the Public Company Accounting Oversight Board, told lawmakers that there are "a number of areas where auditors should have delved more deeply."
Doty, a former SEC general counsel who was named PCAOB chairman in January, cited "enduring and recurring problems in financial reporting and auditing," specifically in valuations and end-of-period transactions.