I. The reporting entities should not be allowed to apply accounting rules or approved exceptions to accounting rules for the purpose of intentionally embellishing their financial statement,since it can be regarded against the rule for the 2 perspectives below:
1) This behavior is essentially agaist the initial purpose of GAAP,which is intended to regulates the enterprises in the USA to record their transaction in a normative and unified way and thus ensure the data in the financial statement fairly and objectively to investors.In Lehman case,Lehman uses Repo 105 to cover its billions liability intentionally.By using the method,Lehman exploited the short-term capital to reduce liability and thus reduced the high leverage ratio,which definitely exaggerate their financial performance ,miss the necessary disclosure and mislead the investors.There is no doubt that Lehman,in fact,breach the aim of GAAP.
2)The enterprises which uses this way to embellish their financial statement is seeking loopholes.It is not that GAAP allows this circumstance but that FASB has not be aware the existing hole.Therefore,it is the time issue for FASB to be conscious that perhaps some enterprises take advantage of it to embellish financial statement and finally make a ammendation.And this is what actually happened,in 2009,the GAAP ammended the previous SFAS.NO 140.Hence,what Lehman do can be regarded as illegal and should be punished.
II. Auditors has the responsibility to determine whether important transactions of a client are "accounting-motivated" for the following perspectives below:
1) The auditor’s job is to collect evidence to test the management assertion,ensure the quality of financial statement and express qualified or unqualified opinion.However,when the auditor expresses unqualified opinion toward an “accounting-motivated” client,the exactly the same way as E&Y does as Lehman’s auditing firm,the auditor is,in fact,assist the Lehman to cover the truth and...