Case study Example | Topics and Well Written Essays - 500 words - 28

Case Study Example The Repo 108 transactions pledged 108% collateralization. At the end of the second quarter reporting period in 2008, Lehman had over $50 billion in Repo 105 transactions and about $6 billion in cash and cash equivalents. The theoretical accounting justification that this treatment as a â€Å"sale† and a contract for repurchase is that the 5% extra of assets transferred is so much greater than interest for the short period that repurchase is obviously different from a pure loan. (Per the legal letter from theLinklaters law firm in London in 2001.) The crux of the E & Y argument is that SFAS 140 (adopted in 2000) in paragraph 98 states that such Repos â€Å"shall† be treated as a sale. Several amendments and changes to SFAS 140 were made prior to 2007 and 2008 when the Repos became a big problem for Lehman and SFAS 160 more recently. The SEC apparently does not have sufficient confidence to charge former Lehman executives with fraud, but is further investigating E & Y. The status of SFAS 140 indicates all conditions set by the letter of the law. SFAS also violates the principles of accounting set by FASB. Many potential investors offer false promises hence altering the accounting information. Rules set in accounting often offer misleading information as it is in the case of SFAS 140. The practice aids accountants remove the temporary liabilities from company balance sheets on temporary purchasing agreements. This is because the transaction is handled as a sale instead of a liability. The controversy of SFAS 140 did not arise in 2008. The standard was under controversy for amendment reasons. The amendment was to re-examine parts of the provisions set for SFAS 140 that may offer misleading information. The issue experienced with Lehman brought about the issue of fore front. SFAS 140 is used by accountants to move assets transfer in the form of sale under certain conditions. SFAS 1140 however has many controversies since its roll out. Investigations