Securities and Exchange Commission (SEC) filed charges and convicted multiple Merrill Lynch executives of aiding the fraud. Įnron had done exactly the same about 10 years earlier in their case, Merrill Lynch aided Enron in bolstering profitability close to earnings periods by willfully entering repurchase agreements to buy Nigerian barges from Enron, only for Enron to buy them back a few months later. Public prosecutors in New York filed suit against EY for allowing the "accounting fraud involving the surreptitious removal of tens of billions of dollars of fixed income securities from Lehman's balance sheet in order to deceive the public about Lehman's true liquidity condition". The scheme consisted of mis-reporting a Repo (a promise to re-buy a liability or asset after selling it) as a sale, and timing it exactly in a way that half of the transaction was completed before a profitability reporting deadline, half after-hence bolstering profitability numbers on paper. Lehman Brothers utilized repurchase agreements to bolster profitability reports with their Repo 105 scheme under the watch of the accounting firm Ernst & Young. Types/examples of creative accounting schemes Earnings management
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