1. Lehman Brothers application of SFAS No. 140 wherein they recorded the repurchase agreements as sales:
   1. Resulted in a premature recognition of revenue for Lehman Brothers.
   2. Resulted in deferred revenue for Lehman Brothers.
   3. Used an exception that allowed these borrowings to be recorded as sales when certain unusual conditions are met.
   4. Would have been allowable had they disclosed it in the notes to the financial statements.

2. Lehman Brothers recording of its repurchase agreements should have aroused concern among the Ernst & Young audit team due to which of the following?
   1. The large amount of transactions involving the repos near the end of reporting quarter.
   2. The large volume of transactions involving the repos.
   3. The fact that Lehman Brothers had to get a British law firm to issue a legal opinion that the repos transactions did indeed qualify as sales and not borrowings.
   4. All of the above.

3. Assume you are an auditor assigned to the Just for FEET, Inc. engagement for fiscal year 1998 (FYE 1/31/99) and during your planning phase you note that sales tripled over the last three years while profits doubled while the industry was experiencing market saturation and declining profit margins. This fact should cause you to
   1. Assume that the clients rapid expansion caused revenues to grow faster than expenses.
   2. Perform more ratio and trend analysis and if warranted, raise your risk assessment.
   3. Ascertain if the same trend was occurring between assets and liabilities.
   4. Devote more time testing fixed asset accounts.