Ernst And Youngs Role In Global Financial Crisis Finance Essay

In this chapter, it will depict the background of Lehman Brothers instance, investigate of incident fondness, purpose and aims of the thesis, and lineation of thesis.

Background of the survey

In 2008, merely after 10 old ages of fiscal crisis[ 1 ]in Asian, another major fiscal crisis now concern for all developed and some underdeveloped states is “ Global Financial Crisis 2008 ” . It is get downing with the bankruptcy of Lehman Brothers on Sunday, September, 2008 and spread like a inundation. In the first topographic point, U.S banking sector autumn in a great liquidness crisis and at the same time around the universe stock markets have fallen, big fiscal establishment have collapsed or been bought out, and authoritiess in even the wealthiest states have had to come up with deliverance bundles to bail out their fiscal systems. ( Global issue )

In 2010, New York Attorney General Andrew Cuomo sued Ernst & A ; Young, impeaching the house of aid a “ major accounting fraud ” by assisting Lehman Brothers deceive the populace about its fiscal status. “ For more than seven old ages before Lehman declared bankruptcy in 2008, the investing bank ( Lehman brothers ) engaged in minutess approved by Ernst & A ; Young whose intent was to travel debt off its balance sheet, make it look less leveraged. ”[ 2 ][ Karen Freifeld and Linda Sandler ( 2010 ) ]

Investigate of incident fondness

These recent accounting dirts perform that directors sometimes mislead stakeholders about the economic public presentation of their company. With this happen, they may bring forth fiscal statement that do non supply a true and just representation of the company ‘s value.

Furthermore, that Lehman Brothers Holdings Inc. is unfastened to intuition of misrepresented in its fiscal statements and deceitful fiscal accounting. Deceitful fiscal accounting is an unethical pattern which affects organisations credibleness frequently ensuing in loss of capital, insolvent, de-listing in instance of listed companies, punishments every bit good as legal suits. “ If “ truth ” is defined as information corresponding of facts, “ deceitful fiscal information and accounting ” can be characterized as the proviso of untruthful information ”[ 3 ][ Marc Chesney Al et ( 2005 ) Earnings Management ] . In add-ons, corporate administration is about ever responsible for deceitful fiscal accounting. “ Harmonizing to Marco Pagano ( 2008 ) said, company should plan good internal corporate administration so as to control deceitful fiscal accounting ”[ 4 ].

Presents, company competition is more and more serious, many companies apparatus corporate administration to heighten investor assurance. Internal control ( IA ) is a important constituent of corporate administration. Therefore, the company needs to apparatus an effectual and efficient internal control to support the company ‘s assets and stockholders ‘ investing.

Besides that, it should be discourse the mighty investing bank of Lehman brothers, which weathered many storms, surrendered like a feeble duck and discontinue the concern in a hebdomad clip when it was caught in the fiscal crisis in the center of 2008. After the energetic attempts, the house put though the one-hundred and fifteen-five old ages from its beginning as a little dry-goods shop to go the fourth-largest investing bank in US. Lastly, Lehman Brothers was choked to decease by losingss on fiscal derived functions ( Deceitful fiscal accounting ) which caused by corporate administration failure or lack. “ Corporate administration consists of a assorted set of legal and institutional mechanisms aimed of safeguarding the involvements of corporate stockholders and of cut downing bureau costs deducing from the separation of ownership ( stockholders ) from control ( directors and/or commanding stockholders ) ”[ 5 ][ F.R.EDWARDS, op. cit ] .

Apart from Lehman brothers ‘ instance, there have assorted grounds for failure of Corporate Governance, which consists of assorted illustrations like Enron, Satyam, Cadbury, and Xerox. And so, it will discourse that the important of corporate administration and fondness of organisations. There can do it clearly Lehman brothers Holdings Ins is possible prostration by deceitful fiscal accounting visual aspect and understand Lehman brothers ‘ corporate administration lack and failure is the major grounds in this serious instance.

1.3 Aim and aims of the thesis

This survey is focal points on the fiscal tsunami in 2008 as a consequence of Lehman brothers ‘ instance with the deceitful accounting and the relationship with corporate administration and to look into the engagement of Leman Brothers in the subprime mortgage concern. It shows the errors committed by the investing bank and following reverberations that, hence, led the house to its concluding death. In this instance besides explores several grounds behind the autumn of Lehman brothers Holdings Inc, and to understand the impactions of comparative regulative organic structures the development of corporate administration in before and after the fiscal crisis in recent twelvemonth. To sum up, it requires understanding that good corporate administration can cut down the deceitful fiscal accounting visual aspect, and how comes the good or effectual corporate administration would be build up.

1.4 Outline of thesis

The followers of the thesis is organized as follows. Chapter 2 is literature reappraisal, which will discourse fiscal tsunami in 2008 and how come Lehman brothers ‘ prostrations would act uponing the fiscal tsunami appear. Chapter 3 is look intoing reappraisal, which describes deceitful fiscal accounting together with its purpose and relation to Lehman brothers ‘ instance. And so, Chapter 4 is look intoing reappraisal besides, but which describes the relationship between the deceitful fiscal accounting and corporate administration, and development, important and ordinances alterations of corporate administration both before and after Lehman brothers ‘ instance. Chapter 5 is describe the corporate administration impaction such issue on a company ‘s direction, the audit profession ( both internal and external hearers ) and the regulative organic structures, it can understand that how to construct up the good corporate administration by whose to cut down the deceitful fiscal accounting. At last, it will pull decision about the thesis and some positions about Lehman brother instance in chapter 6 of decision.


F.R.EDWARDS, op. cit

Karen Freifeld and Linda Sandler ( 2010 ) Bloomberg Businessweek,

Marc Chesney Al et ( 2005 ) Earnings Management, Ethical Finance Research Series

Marco Pagano ( 2008 ) Corporate Fraud, Governance and Auditing