LEHMAN BROTHERS SCANDAL (2008) COMPANY LEHMAN BROTHERS HOW THEY GOT CAUGHT Global financial services firm Went bankrupt WHAT HAPPENED Hid over $50 billion in loans disguised as sales. $50 b. PENALTIES Forced into the largest bankruptcy in US: history. SEC didn't prosecute MAIN PLAYERS due to lack of evidence. Lehman the company's auditors, executives & Ernst & Young FUN FACT In 2007 Lehman Brothers was HOW THEY DID IT Franked the #1 Most Admired Allegedly sold toxic assets to Gayman $50 BILLION Securities Firm by Fortune Magazine Island banks with the understanding that they would be bought back eventually Created the impression Lehman had $50 billion more cash and $50 billion toss in toxic assets than it really did, (Source: https://www.accounting-degree.org/scandals/) REQUIRED: (a) Describe the type of fraud related to the Lehman's case. Give TWO (2) examples of how this type of fraud can be accomplished. (4 Marks) (b) Explain THREE (3) management assertions which may have been manipulated by the management of Lehman. (6 Marks) (c) Explain TWO (2) objectives of the auditor as stated in ISA 240, "The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements". (4 Marks)(d) Discuss the concept of "reasonable assurance " from audit perspective. (2 Marks) (c) Explain TWO (2) situations that reasonable assurance is more applicable rather than absolute assurance in detecting material misstatement by an auditor. (4 Marks)