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Lehman Bros Accounting and E&Y
Old 03-21-2010, 10:13 AM   #1
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Lehman Bros Accounting and E&Y

According to the news: Looks like Lehman's accounting is suspect and it appears the auditor was lax.

Hope the Justice Dept prosecutes all of them they can.

Lehman, Ernst & Young and accounting - Insider

Quote:
"Ernst & Young took virtually no action to investigate the Repo 105 allegations," the report said. It added that "colorable claims exist" that Ernst & Young failed to meet professional standards in investigating Lee's allegations and in connection with its audit and review of Lehman's financial statements.

Whistle Blower Vindicated: UPDATE 1-Lehman whistle-blower 'vindicated,' lawyer says | Reuters
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Old 03-21-2010, 11:22 AM   #2
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My alma mater. Hope they didn't screw up.
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Old 03-22-2010, 05:06 AM   #3
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From what I read, perhaps a legitimate characterization of assets was used a little to liberally.

I think the question this begs is who does the auditor represent, the company or the investors?

Look at the debacle back during 2000 where Arthur Andersen was negligent in its audits of energy trader Enron Corp. and telecommunications company WorldCom Inc. IT was one of the reasons SOX was enacted into law. It does not speak well of auditors.

But I am not surprised. Look at the bond rating agencies and the SEC during the housing bubble period... all of the regulatory mechanism seems to have been broken or looking the other way.
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Old 03-22-2010, 03:57 PM   #4
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I had fairly front row seat of the whole Enron fraud. In that case, there were plenty of other companies in the industry who were playing the same exact games, only not to the same degree. I'll extrapolate from that experience to say it is a fair bet that if Lehman was cooking their books, other financial companies were too.
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Old 03-22-2010, 04:21 PM   #5
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My daughter is an alum of the same so I hope so too. But after listening to audit war stories for a few years I think the issue is that some companies are just too big for an annual audit. [Add to that the corporate accounting folks probably pulled out the stops to obscure the nature of the transaction.] The other concern I have stems from the Enron audit.. the auditor is hired by the company (aka the Board whose allegiance is oft more to management than stockholders).

The life of a corporate jr auditor is not easy and frankly the pay is nothing to write home about, turnover is rapid. Audit staff should be prohibited from working at a firm that was their audit client for several years (5 for argument's sake) but they need to stay long enough in the industry to understand what is going on and be able to see through smoke screens. If we expect a better result I think the process needs a major change.

I think the auditor for these companies should be hired and paid by the SEC through fees and that the audit should be ongoing.

My 2 cents....
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Old 03-22-2010, 04:36 PM   #6
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Quote:
Originally Posted by chinaco View Post
I think the question this begs is who does the auditor represent, the company or the investors?
In theory they work for the shareholders and the government to Independently document cash flows, earnings, debts, and assets.

However they get paid by the company - so who is the real allegiance to ?

This is yet another conflict of interest that we have seen lately.
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Old 03-22-2010, 04:38 PM   #7
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...I'll extrapolate from that experience to say it is a fair bet that if Lehman was cooking their books, other financial companies were too.
I suspect the same. It will come out in the investigation.

[Rhetorical Question] What purpose are the GAAP financial reports supposed to serve?

I fail to see how lehman's treatment of those assets would lead to transparency that helps investors better understand the health of the company.

Why would they characterize those assets that way... temporarily?
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Old 03-22-2010, 07:43 PM   #8
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I wouldn't say that the SEC has distiguished itself recently either. Lots of rules but no effective supervision. US should look to Canada for a better model.
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Old 03-23-2010, 08:32 PM   #9
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I suspect the same. It will come out in the investigation.

[Rhetorical Question] What purpose are the GAAP financial reports supposed to serve?

I fail to see how lehman's treatment of those assets would lead to transparency that helps investors better understand the health of the company.

Why would they characterize those assets that way... temporarily?
These things get pretty complicated, and details matter a lot. But typically you can't engage in transactions that have no economic purpose other than to manipulate your financial statements. This sounds like fraud to me, but again, the details matter a lot.
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Old 03-23-2010, 11:49 PM   #10
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For some reason I kept reading the title as Lehman Bros Accounting and EBay and that really had me scratching my head!!!!!

LOL!

Audrey
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