Question

In the Lehman Brothers case did the auditors exercise sufficient professional skepticism based on the statement "In fact, lead engagement partner William Schlich informed Anton R Valukas, the examiner in the eventual bankruptcy proceedings, that Ernest and Young had long been aware of Lehman's Repo 105 transactions. It did not "Approve" the policy but became comfortable with the policy for purposes of auditing financial statements."EY indicated to the Examiner that it concurred with Lehman's approach, although it did not have an opinion on the use of the transaction to manage the company's reported debt?"

Answer 1

• Lehman Brothers had humble beginnings as a dry-goods store, but eventually branched off into commodities trading and brokerage services.
• The firm survived many challenges but was eventually brought down by the collapse of the subprime mortgage market.
• Lehman first got into mortgage-backed securities and CDOs in the early 2000s before acquiring five mortgage lenders.
• The firm posted multiple, consecutive losses and its share price dropped.
• Lehman filed for bankruptcy on Sept. 15, 2008, with $639 billion in assets and $619 billion in debt.