Financial reporting Case Study Example | Topics and Well Written Essays - 1500 words - 1

Financial reporting - Case Study Example C) issued new additional disclosure requirements; and the Financial Accounting Standards Board(FASB) went to the extent issuing an exposure draft (ED) proposing to eliminate the criterion to account for Repo 105 transactions as sales. Lehman’s bankruptcy was considered as the largest one in the financial history of America. In 1850, Lehman took start as a modest retailer of textiles and clothing in Alabama; soon, it became a leading global financial services giant, investing mostly in investment banks, investment management and brokerage securities. However, the year of 2008 recorded the financial history with Lehman filing bankruptcy in September due to its exposure of the risks associated with the residential-mortgage loans; at the same time, Lehman owed $613 billion to its creditors. Lehman perpetrated its deception by using 102% in Statement of Financial Accounting Standards (SFAS) No. 140 (Pounder, 2011) in repos. A repo is associated with a transfer of financial assets when the borrower-transferor- wants to hold its ownership of the assets in the long term, but requires fulfilling the short term cash needs. Initially, the transferor commits that he would repurchase the financial assets in a given period of time after receiving a sum of cash- mostly smaller than the original value of the asset- for the financial assets. Upon maturity of the date, the transferor repays the amount originally received at the start of the transaction along with an agreed-upon sum of additional cash to the transferee. This transaction is accounted for as receiving a short term loan from the transferee and the financial asset is recorded as collateral in case the transferor is unable to repay the sum of amount. The accounting treatment for this type of accounting transaction is prov ided in (SFAS) No. 140, â€Å"Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.†, providing two accounting treatments applicable to such transfers. Under