As indicated in the box in this chapter, Lehman attempted to structure end-of-quarter transactions as sales of financial instruments when in substance it turned out be temporary borrowing of cash. This allowed it to hide up to $50 billion of debt in some quarters. The auditor claimed this was in accordance with GAAP. In a lawsuit filed by New York’s Attorney General in December 2010, the official claim is that the auditor knowingly committed fraud and conspired with Lehman Brothers to reclassify tens of billions of dollars on the balance sheet. This is the first time the Martin Act (New York’s more stringent securities regulation that served as a model for the SEC Acts) has been used against auditors. On March 22, 2012, the auditor was unsuccessful in moving the case from New York’s state court to federal court.
Discuss in class whether Lehman’s financial statements were in conformity with U.S. GAAP (Refer to FASBs SFAS 140: Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities). Did the financial statements present fairly? Discuss.

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