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Finance & Accounting
Pages 8 (2008 words)
LEHMAN BROTHER AND THE “REPO 105” SCANDAL By Name Course Tutor’s Name Institution Date Lehman Brothers and the “Repo 105” Scandal 1. The “Repo 105” is an accounting trick commonly used by banks and other financial institutions such as investment banks, whereby they report a short-term loan as a sale, which of course is not…
The trick works perfectly, and manages to lure unsuspecting investors into trusting the company’s financial reports. Banks however use Repo 105 for purposes of short term borrowing, while in the case of Lehman, it was used to reflect a healthier balance sheet than it actually was. Jeffers (2011, p. 2) observes that the Lehman brothers used the “Repo 105” in its accounting severally to report impressive financial statements and win the trust of potential investors, by showing healthy securities. The company was an investment bank which had gone global. Lehman’s’ auditors on three occasions used the Repo 105 creative accounting trick to boost investor confidence. The trick used by Lehman helped them temporarily remove from its balance sheet roughly $ 50 billion, making the balance sheet look better the actual status of the company’s financial statements. However, at the time of filing its bankruptcy case, the company has a total of $ 639 billion in assets and $ 619 billion in debts. This formed the biggest bankruptcy case that affected over $ 10 trillion in investments. ...
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