Richard S. Fuld Jr, Chairman and Chief Executive Officer, Lehman Brothers, captured during the session Myths and Realities of Sovereign Wealth Funds at the Annual Meeting 2008 of the World Economic Forum in Davos, Switzerland, January 24, 2008.

Lehman Brothers ousted a whistleblower just weeks after he raised red flags with Big 4 accounting firm Ernst & Young on a $50bn scam in 2008. The issue of the events leading up to the collapse of the bank have focused attention on high-fee auditors who engage in box ticking in compliance of requirements but shut their eyes to what be may be going on under the surface.

The Wall Street Journal reports today that Matthew Lee, a 14-year Lehman veteran, was let go in late June 2008 amid steep losses at the firm as it tried to maneuver through the global financial crisis. Earlier that month, he had raised concerns with Lehman's auditor, Ernst & Young (E&Y), that the securities firm was temporarily moving $50 billion in assets off its balance sheet.

Last week a report by lawyer Anton Valukas for the New York Bankruptacy Court on the collapse of the investment bank in September 2008, which triggered the global recession,  said there is credible evidence E&Y did not meet professional standards. The report says E&Y never mentioned Lee's concerns to Lehman's board. In a statement, the auditing firm said that Lehman's management investigated Lee's allegations and informed the board that "the allegations were unfounded and there were no material issues identified."

Lehman was able to shift $50bn of loans off its balance sheet, and thereby massage its leverage figures, by structuring a regular financing arrangement as an asset sale. E&Y approved the "sale" under US GAAP, the US accounting standards.

Robert Hodginkson, of the Institute of Chartered Accountants in England & Wales, told the Daily Telegraph:"You wouldn't have tried to get such a treatment to fly under [international standards]."

Lehman's European business was based in London and subject to international rules. The "gimmick" has a UK link, as it was approved by the law firm, Linklaters, under "English law applied by the English courts".

The Texas energy trader Enron had collapsed in 2002 and many people would have expected that the accounting manipulations of shifting dodgy transactions off a company's accounts would have ended but the collapse of the subprime house finance market old another story.

On Monday, the UK Financial Reporting Council issued a statement on Lehman's so-called "Repo 105" transaction:"Following the publication of the recent report on Lehman Brothers, the FRC is ascertaining the facts on how the “Repo” transactions were accounted for and audited in the UK in order to determine any implications. To that end, we have asked Ernst & Young to provide further information in relation to what happened in the UK."

The history of Lehman Brothers parallels the growth of the United States. The firm began as a general store in the American South. Henry Lehman, who came from  Germany, opened a shop in  Montgomery, Alabama in 1844. In 1850, he was joined by brothers Emanuel and Mayer, and they named the business Lehman Brothers. Cotton was the cash crop of the day and the Lehmans accepted it from farmers as currency to settle accounts. The firm  traded the cotton for cash or merchandise, becoming brokers of the crop. In 1858, they opened an office in New York, which was the commodity trading center of the country.

In Ireland, E&Y was the auditor of Anglo Irish Bank and the firm says it failed to discover large value hidden director loans over an 8-year period.

The FT reported on Monday that big Four firms PwC, KPMG, Deloitte and E&Y, signed off successful audits of other banks at the centre of the crisis and made lucrative fees. E&Y was paid $27.8m for auditing Lehman, Deloitte made £17m for auditing RBS and KPMG received $9m for auditing HBOS, according to a UK parliamentary inquiry. PwC earned £1.8m ($2.7m) for the last year of its audit of Northern Rock.

The newspaper says while there is no suggestion, that these firms failed to meet required professional standards in these cases, the routine of box ticking fostered by the profession over the past five to 10 years, a technique that helps firms defend themselves against law suits, has diminished their authority.

“If there is one lesson to be learned from the high profile corporate failures of Enron, WorldCom, Marconi and the lot, it is that we must move away from the western model of a box ticking approach to corporate governance. Enron had ticked every box. The chairman of its audit committee was a person of irreproachable reputation and no less than the Dean of Standard Business School. Law, rules and regulations are never an answer for the issues of head and heart,” this was stated by Dr Madhav Mehra of the World Council for Corporate Governance in January 2003.

“To think that Enron, Marconi and Vivendi are simply isolated cases where corporations have cheated the innocent public is to show evidence of extreme naiveté," Lynn Turner, Chief Accountant of the SEC from 1998-2001 who was earlier a partner of Cooper & Lybrand admitted in a TV interview “All the Big Five accounting firms helped Wall Street investment banking firms to engineer hypothetical transactions to make companies look better than they actually were," added Mehra.

The Big 5 became the Big 4 after the collapse of Enron auditor Arthur Andersen.

Boom or bust - - Big accounting firms still in the money but should they be trusted?