Ernst & Young has verified that a letter circulating on the internet is one the firm sent to select clients to quell concerns that may be brewing about the firm’s role in auditing the failed Lehman Brothers as it crumbled into bankruptcy.

“Yes, this is a letter we sent to some clients,” said E&Y spokesman Charles Perkins. It was first circulated through an accounting professor’s e-mail exchange by a professor who also serves as an audit committee member for an E&Y client. It has since proliferated on the internet.

The letter defends E&Y’s audit work through Lehman Brothers final fiscal year before it collapsed and notes it reviewed but did not audit interim periods that followed. “Lehman’s bankruptcy was caused by a collapse in its liquidity, which was in turn cased by declining asset values and loss of market confidence in Lehman,” the letter says. “It was not caused by accounting issues or disclosure issues.”

Lehman Brothers’ accounting during its final days has been described in a voluminous report from its court-appointed bankruptcy examiner as questionable. The firm engaged in some desperate off-balance-sheet maneuvers to hide as much as $50 billion in debt, the report says.

“The examiner identified no potential claims that the assets and liabilities reported on Lehman’s financial statements (approximately $691 billion and $669 billion, respectively, on November 30, 2007) were improperly valued or accounted for incorrectly,” E&Y asserts.

E&Y’s letter says the examiner’s report doesn’t challenge the accounting itself, but rather whether off-balance-sheet repurchase transactions should have been disclosed in footnotes to the financial statements. “Lehman’s 2007 audited financial statements included footnote disclosure of off-balance-sheet commitments of almost $1 trillion,” E&Y wrote. “Lehman’s leverage ratios are not a GAAP financial measure; they were included in Lehman’s MD&A, not its audited financial statements. Lehman concluded no further MD&A disclosures were required; E&Y did not take exception to that judgment.”

The firm ends the letter with its assurance: “Should any of the potential claims be pursued, we are confident we will prevail.”