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Accounting Principles

Essay by   •  May 11, 2013  •  Essay  •  499 Words (2 Pages)  •  1,344 Views

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Abstract

In this research paper I will be going over some unusual accounting practices of Lehman Brothers Co. I will be identifying some strengths and weaknesses of each department and make recommendations for improvement. I will also attempt to identify the problems and conflicts that lead to the demise of the Lehman Bro. Co.

Accounting Principles

Accounting simply put is the language of business. It is a system of recording, summarizing, and analyzing the economic entity of financial transactions. The key to any business is effectively communicating this information. Having sound and effective accounting will ensure that business is not only done properly but that it will also continue. A lack of integrity and professionalism can and will most times lead to a business falling apart no matter the size of the company.

The Lehman Brothers company was a global financial service firm that participated in business in investment banking, equity, and fixed income sales. This was a company that also did research and trading investment management, and private banking until declaring bankruptcy in 2008. This was a company that was highly respected around the world and one that was brought down by using bad accounting practices to hide the fact that they were in serious financial trouble. The financial report does not show the misleading information that it show be showcasing instead by using bad accounting practices Lehman leads its shareholders to believe that the company is fine and continuing to make money.

An unusual accounting practice from within the company known as "Repo 105" transactions temporarily removed securities from its balance sheet to create a misleading picture of the firm's financial condition (Durden, 2010). The financial statements do not show the tens of billions of dollars borrowed from the Repo 105 transactions. In turn Lehman did not disclose the know obligation to repay the debt instead using the cash to pay down other liabilities, thereby reducing both the total liabilities and total assets reported on its balance sheet and lowering its leverage ratios. A few days after the new quarter began the company would borrow the money needed to repay the cash borrowing plus interest repurchase the securities and restore the assets to its balance sheet.

Lehman should have been candid with its shareholders and reported its true financial statement this would have had a devastating effect on its company. As it should have bad financial accounting and covering up the fact the company is doing bad did not stop Lehman Bro. from going bankrupt it did slow down the process. However had the company been honest about its financial stance it may have been able to avoid going bankrupt and been able to stay in business.

The accounting practices done by this firm were just immoral and

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