Lehman Bros Ernst&Young Examine

 Lehman Bros ErnstYoung Review Essay

Lehman Siblings 2008

Auditing Final Job

Mariya Zdravkova MIAF 2011, IE

Table of Content:

1 ) Company Introduction…………………………………………………….. ……………………………………. several 2 . Collapse…………………………………………………………………………………….. ………………………….. a few 3. The Report of Anton R. Valukas………………………………………….. ………. …………………………3 some. The accounting fraud (Repo 105)…………………………………………………... ………………………. 3 5. The Auditor…………………………………………………………………………………………….. …………….. 4 6. Ernst and Fresh role in Lehman Brothers´ case………………………………………………………. some 7. The " Coming up Grid”………………………………………………………………………………. …………………. 5 almost 8. Materiality issue……………………………………………………………………………. ………………………. a few 9. Scams charges……………………………………………………………………………………………………. six 10. Conclusion…………………………………………………………………………………………………………6 Sources……………………………………………………………………………………………………………………7

1 . Company Introduction. Lehman Brothers was obviously a company having a long and interesting background. It was founded in 1850 as a family business, simply by three siblings who immigrated to the US, and started as being a shop, which in turn later joined trading with cotton. Eight years later this opened the office in New York. Through the more than one hundred and fifty years lifestyle the company became the fourth greatest financial organization in the world. Just before announcing personal bankruptcy on fifteenth of Sept. 2010 2008, we were holding providing full-range of financial solutions. The head 1 / 4 of the organization was in New York, and there were two regional headquarters working in london and Tokyo. In 1984 Lehman Close friend was attained by American Express. A decade later they went public again because an independent business under the name Lehman Brothers Holding, Inc.

2 . Failure. The first problems, which usually probably led to the accounting fraud, Lehman faced in August 2007. The mortgage turmoil strongly damaged them, leading to huge deficits. They had to close their subprime lender office, which triggered after-tax fees of $25 million in addition to a reduction in their very own balance sheet – $27 countless Good Is going to. In 08 they continue suffering huge losses (graph 1) – during the initially half of the season their stock fell simply by 70%. This tendency extended in the subsequent months, right up until in the beginning of September the stocks lost 45% with their value in a single day. On Monday, September 15th, Lehman Brothers recorded for Chapter 11 personal bankruptcy protection. This is certainly a part of the united states legislation that enables a business to reorganize it is activity being a debtor in possession.

Graph one particular Lehman´s shares movement

3. The Report of Anton L. Valukas. Anton Valukas, as an element of the law organization Jenner and Block, was appointed by court to measure the reasons to get the individual bankruptcy of Lehman Brothers. Just in this survey and no before was uncovered the scam in the economic reporting of Lehman Brothers. The statement reveals the use of both Repo 105 and Repo 108 by the company, in order to conceal their hard financial situation. Later on in this text, the record will be traditionally used due to its outstanding investigation of the auditor´s participation in the fraud and its relevancy to our case.

some. The accounting fraud (Repo 105). Repo 105 can be described as financial tool, a repurchase agreement, used by companies to finance their particular short term personal debt. They sale the property and they report it like a sale and use the cash to pay their loan providers. Later after their economic report is usually published, they repurchase the asset. And so an operation which can be borrowing money or issuing debt is presented inside the financial record as a sales. In fact the business is much remarkably leveraged than it appears to be. Repo 105 and 108 are identical musical instruments where the just difference may be the cost of personal debt. In the case of the first is 5% in the value from the asset and in the second case this amount is 8%. The company used the Repo to fund its short-run debt, till they recover from some failures, but the issue with Lehman originated in the fact that their stocks and shares continued falling and their financial situation was not increasing. The counterparties lost their very own trust in the company´s capacity to...

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