The Lehman Brothers, an investment banking firm filed for bankruptcy in September of 2008 due to poor financial choices. The company made many bad decisions because of their greed and unethical decision to manipulate the books. The lack of success by the Lehman Brothers shows that it is imperative to be self-evident with financial reporting. The bankruptcy shows that they failed to use factual figures by disguising their actual financial position. The analysis of the Lehman Brothers will show the acts of unethical financial reporting and the effect it had on this financial banking firm.
The trouble for the Lehman Brothers became apparent around the time the housing bubble burst. Lehman acquired more risk, ignoring the truth and began eliminating assets that were overvalued. They did not want to lose confidence from the investors, so they reported assets that had little to no value. “Lehman Brothers balance sheet grew rapidly beginning in 2006, and included many long-term investments financed through short-term borrowing”. (Examiners report, 2010 Vol. 1 pp.3-4) The unethical approach Lehman took by manipulating the books would lead any financial company to ruins.
The repo 105 transactions that Lehman Brothers used accounted for sales, which permitted them to remove some assets and liabilities from the balance sheet; causing their leverage ratio to be lowered. Lehman elevated their repo 105 transactions around quarterly reporting to the (SEC) Securities and Exchange Commission to minimize leverage ratios. By doing this they showed compelling financial positions that actually did not prevail. Lehman collected cash by signing a short-term note payable and promised assets as ancillary for the loan. Lehman continued to secure more repo 105 transactions to pay off different liabilities, which allowed them to decrease assets and liabilities.
Ernst & Young was accountable for accepting the significance of the leverage ratios. They were advised to look into allegations concerning ethic violations linked to accounting issues. Ernst & Young met with the Audit Committee regarding the financial statements of Lehman Brothers, but did not disclose any accusations in regards to the excessive repo 105...