ACCOUNTING: A Failure of Principles?

A Failure of Principles?

Even as S&Ls were teetering on the brink of bankruptcy, their financial health was being certified by accounting firms. As a result, one company is now threatened with loss of its license in California. The state board of accountancy has charged Ernst & Young with negligence in auditing Charles Keating's Lincoln Savings and Loan, whose 1989 collapse could cost taxpayers $2 billion.

The board contends that Arthur Young, which later merged with Ernst & Whinney, improperly allowed the thrift to show a pretax profit in 1987 by violating generally accepted accounting principles. The firm, which severed its ties to Lincoln in...

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