Chapter 1 - Overview of Corporate Financial Reporting

Barclays In New Lehman Scrap

Summary:

A year on after the collapse of Lehman Brothers, the takeover of the bank’s assets is finally coming back to the Barclays Capital. The trustee of the bank’s estate is requesting a refund of $8.2 billion or more on the grounds that the British bank landed itself because of assets that it received were not intended to be part of the “deal”. The claim has been condemned as “opportunistic” by Barclays Capital based on a “meritless argument” and an attempt to re-trade a deal after the economy has stabilized. The two sides have till October 15 when a hearing is scheduled to take place at the Bankruptcy Court, southern New York.

Ethics in Accounting:

As stated in the textbook, the management of a company, through the direction given to it by the board of directors, has both a moral and a legal obligation to safeguard the investment shareholders have entrusted to it. Shareholders typically provide some incentives for and controls over management, to ensure that management fulfills this stewardship function with regard to company resources. Additional compensation arrangements, like stock option plans and bonuses, are often tied to the company’s financial performance and provide incentives for management to make decisions that are in the best interests of the shareholders.

Reflections:

In the case of ethics in accounting, Lehman’s bankruptcy was the largest failure of an investment bank since Drexel Burnham Lambert collapsed amid fraud allegations 18 years prior in 2008. As a result of fraud and contract terminations with Lehman’s, shares tumbled over 90% on September 15, 2008. As a result, the Dow Jones closed down just over 500 points. As a result of bad ethics in accounting and deals, this caused a very successful bank to fall and go bankrupt, most likely disrupting many other companies and individual’s books. With such strong banks failing, the economy takes a great hit with everyone affected, even a year after.