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Nama : Irfan Jaya Kusumah

NIM : 2101751990

Kelas : LJFA

Buatlah analisis untuk kasus dibawah ini dan berikan jawaban untuk pertanyaan yang disertakan.

The Dearth of Ethics and the Death of Lehman Brothers

Many believe the beginning of the end for Lehman Brothers was when Washington repealed the
Glass-Steagall Act. This landmark legislation from the Great Depression separated the interests of
commercial and investment banks, preventing them from competing against each other (2) and protecting
their balance sheets by allowing each sector to focus on the business and transactions that it did best. For
investment banks, that typically meant highly liquid, asset-light portfolios, leaving commercial banks to
handle capital-intensive portfolios, including real estate or corporate investments. Additionally, the act
insulated the economy from mass collapse in the event of one sector’s failure by preventing the other from
being dragged down in tow. But in 1999, President Clinton signed the Gramm-Leach-Bliley Act into law,
allowing commercial and investment banks to compete head-to-head for the first time in 60 years (2). The
arms race that ensued would prove disastrous for Lehman Brothers, the financial community, and the global
economy at large.

With the repeal of Glass-Steagall, Lehman Brothers became a key player in the United States
housing boom. From 2004 to 2006, Lehman Brothers experienced a 56 percent surge in revenues from real
estate businesses alone (1). The firm recognized profits from 2005 to 2006, and in 2007 it reported a record
net income of $4.2 billion on revenues of $19.3 billion. In the same year, Lehman Brothers’ stock reached
an all-time high of $86.18 per share, giving it a market capitalization close to $60 billion (1). This proved
exceptional to the surrounding climate, however, and the housing market began to show signs of a pending
bubble burst.

In March 2007, the stock market experienced its biggest single-day plunge in five years, while the
number of mortgage defaults simultaneously rose to the highest percentage in almost a decade. Bear
Stearns, Lehman Brothers’ most comparable Wall Street rival, experienced the total failure of two hedge
funds in August. Despite rapidly deteriorating marketing conditions, Lehman Brothers continued writing
mortgage-backed securities and touting its financial strength to the press and shareholders while decrying
the notion that domestic and global economies were in danger. Meanwhile, its operations were reckless, as
illustrated by its $11.9 billion in tangible equity and $308.5 billion in tangible assets on balance sheets in
2003 that yielded a leverage ratio of 26 to 1.
Four years later, its $20 billion in tangible equity and $782 billion in tangible assets sent its leverage ratio
skyrocketing to 39 to 1 (4). Even with storms brewing in every direction, Lehman Brothers failed to trim
its portfolio of high-risk, illiquid assets, and when crisis erupted in 2007, Lehman Brothers had missed its
chance. Instead of acknowledging this misstep, executives took internal action to preserve a rosy façade.

By means of deliberate accounting sleight-of-hand, concealment, and communication of

misleading information, until 2008 Lehman Brothers maintained the appearance of underdog success to the
investment community. The primary means by which Lehman Brothers disguised its distress was through
implementation of what was known to insiders as “Repo 105.” This legal but shady accounting device
helped create favorable net leverage and liquidity measures on the balance sheet, which was key for credit
rating agencies and consumer confidence. By utilizing Repo 105, Lehman Brothers raised cash by selling
assets to a behind-the-scenes phantom company called Hudson Castle, which appeared to be an
independently run organization but was actually controlled by Lehman Brothers executives. In accordance
with Repo 105 terms, assets were sold to Hudson Castle and repurchased between one and three days later
(3). Because the assets were valued at 105 percent of the cash received, GAPP accounting rules allowed
the transactions to be treated as sales, thus removing the assets from Lehman Brothers’ balance sheet
altogether.

Under the direction of Chief Financial Officer Erin Callan and the certification of Chief Executive
Officer Richard S. Fuld, Jr., Lehman Brothers applied this technique at the end of the first and second fiscal
quarters of 2008 to transfer a combined total of $100 billion, amending its leverage ratio from 13.9 to a far
more favorable 12.1. Thanks to creative accounting and clever public relations, Lehman Brothers was able
to report a positive view of its net leverage, including a $60 billion reduction in net assets on the balance
sheets and a deep liquidity pool. Each of these quarterly balance sheet spins was intended to offset the effect
of announcing — for the first time in years — a loss of $2.8 billion from write-downs on assets, decreased
revenues, and losses on hedges (1). Application of Repo 105 allowed Lehman Brothers to avoid having to
report selling assets at a loss.

During the bankruptcy investigation, the company’s global finance controller admitted that, “there
was no substance to [Repo 105] transactions (5).” Fuld, Callan, and their respective teams concealed the
use of this tactic from ratings agencies, investors, and the board of directors. The one party in on the scheme
was Ernst & Young, Lehman Brothers’ audit firm, which failed to alert either internal or external parties to
the manipulation that was taking place, even when explicitly questioned. They could not maintain the
illusion for long, however, and in September 2008, Lehman Brothers’ situation finally came to a head.

On September 10, 2008, just three months after reporting second-quarter successes, Lehman
Brothers announced that its supposedly robust liquidity amounted to approximately $40 billion, but only
$2 billion constituted assets that could be readily monetized. The remainder was tied up on so-called
“comfort deposits” with various clearing banks, and though the firm technically had the right to recall said
deposits, the validity of Lehnman Brothers’ work with these institutions was questionable at best (2). By
August, the deposits had been converted into actual pledges.
 A few months prior, Fuld began coming to terms with Lehman Brothers’ negative outlook. In a
last-ditch effort, he made a public offering that yielded $6 billion in new capital for the firm. However, by
the by the time third fiscal quarter financial statements were due, Lehman Brothers was projecting
additional losses of $3.9 billion. Its stock price had plummeted to $3.65 per share, a 94 percent decrease
from January 2008. Fuld announced a plan to spin off the majority of the company’s real estate holdings
into a new public company, but there were no prospective buyers (Holdings, Inc.). On Sept. 13, the United
States Treasury made it clear that Lehman Brothers would not be the recipient of bailout money. Instead, a
number of financial institutions, including Barclays and Bank of America, were being encouraged to
acquire the faltering company, invigorate it with much-needed capital, and bring it back from the edge of
collapse (3). Each potential acquiror declined. On Sept. 15, 2008, Fuld admitted defeat and finally heeded
private advice from Treasury Secretary Henry Paulson, Jr. At 1:45 a.m., he filed for Chapter 11 bankruptcy
protection, just before the opening of Asian markets (1).

In the days following the largest bankruptcy filing in United States history, the American market
experienced a shock unlike any it had felt since the Great Depression. When the domestic stock market
opened on Sept. 15, the Dow Jones dropped 504 points. The following day, Barclays agreed to buy Lehman
Brothers’ United States capital markets division for the bargain price of $1.75 billion. Meanwhile, insurance
giant AIG was on the verge of total collapse, forcing the federal government to step in with a financial
bailout package that ultimately cost $182 billion (3). On Sept. 16, the Primary Fund announced that due to
its Lehman Brothers exposure, its price had plummeted to less than $1 per share. The ripple effect of
Lehman Brothers’ failure was widespread, giving rise to a confidence crisis in global banks and hedge
funds. Credit markets froze, forcing international governments to step in and attempt to ease concerns.
Domestically, this resulted in the controversial passage of the Trouble Asset Relief Program, a $700 billion
federal rescue aid package, on Oct. 3, 2008 (5).

Finally, Ernst & Young, the only third party privy to the happenings at Lehman Brothers, failed to
reveal the extensive steps taken by executive leadership to conceal financial problems. As a firm of certified
public accountants expected to honor and uphold an industry-wide code of ethics, Ernst & Young may be
accused of being responsible for gross negligence and lack of corporate responsibility. Why would such a
highly respected organization risk its own reputation and turn a blind eye on behavior that is clearly
unethical? Obviously Lehman Brothers was a sizeable (and presumably lucrative) client of the firm. But
past scandals involving questionable accounting observances, such as Enron, have demonstrated firsthand
that inaction is as equally reprehensible as direct involvement in the scheme itself. More than just a
paycheck was at risk, and failure to act successfully discredited Ernst & Young on the basis of ethical and
industry standards. As an accounting firm, Ernst & Young is charged with certifying that companies deliver
accurate and reliable information to shareholders. In this regard, Ernst & Young failed completely, as
executives were aware of behind-the-scenes bookkeeping and the extent to which it was occurring. In this
situation, concern for ethical behavior was of minimal or nonexistent concern. Therefore, the company’s
shareholders were deliberately deceived for the purpose of preserving a paycheck, and in that regard, the
team of accountants who chose not to act disappointed more than just their company; they let down the
entire industry and each of the right-minded professionals within it.
 The story of Lehman Brothers’ demise is unfortunate, and not just because its collapse meant the
end of a Wall Street institution. The real tragedy lies in the lack of ethical behavior of its executives and
professional advisors. They made conscious decisions to deceive and manipulate, and the consequences
proved too dire to preserve the historic investment bank’s existence. The perennial lesson of the Lehman
Brothers case is that no matter how dire the circumstances may appear, transparency and accountability are
paramount. Right action up front may sting initially, but as history has repeatedly shown, gross unethical
business practices rarely endure in the long term. A global financial crisis such as that of 2008 may not be
prevented from happening again. What can be improved, in large measure through ethics education, is how
corporations behave. Wall Street should take note of the case of Lehman Brothers to ensure history does
not find a way to repeat itself.

Instruksi:

Jelaskan fakta-fakta dari kasus hukum dan keterlibatan akuntan publik (kantor akuntan) pada kasus tersebut
diatas.

Sumber : Case Study: The Collapse of Lehman Brothers.” Investopedia.com. 2 Apr. 2009. Web. 26 Nov.
2011.

Analisa Soal

Analisis untuk kasus “The Collapse of Lehman Brothers” adalah sebagai berikut:

1. Pada awal abad 20, generasi kedua Lehman memutuskan untuk meninggalkan bisnis komoditi dan
beralih ke bisnis keuangan dengan membuka usaha sebagai investment banker.
2. Tahun 1990-an, transaksi derivatif Lehman meningkat menjadikan Lehman sebagai salah satu
pemain utama dalam bisnis derivatif. Transaksi derivatif Lehman yang besar adalah residential
mortgage-backed securities (RMBS), yang merupakan sekuritas dengan jaminan pinjaman
perumahan beragunan.
3. Sampai dengan tahun 2006, harga perumahan di Amerika relatif stabil, namun pada awal 2007,
harga perumahan menurun drastis.
4. Transaksi Repo merupakan penjualan sekuritas dengan janji dibeli kembali di masa mendatang
yang digunakan oleh perusahaan-perusahaan besar untuk mendapatkan pembiayaan jangka pendek
dengan mudah. Transaksi ini diatur dalam SFAS No. 140 di Amerika.
5. Interpretasi perlakuan akuntansi ini digunakan Lehman untuk mencatat transaksi repo nya, yang
dikenal dengan Repo 105, sebagai penjualan.
6. Dalam transaksi Repo 105, terdapat dua hal yang dapat mempengaruhi neraca Lehman.
- Pertama, adalah penjualan sekuritas, yang tidak berdampak signifikan terhadap asset. Hal ini
dikarenakan investasi yang dijual dioffset dengan diterima nya dana berupa cash.
 - Kedua, adalah hasil dari penjualan sekuritas tersebut digunakan Lehman untuk membayar
liabilitasnya sehingga menurunkan leverage Lehman. Jika dilihat secara bersamaan, transaksi
ini menghasilkan net leverage yang lebih rendah.
7. Lehman menggunakan transaksi Repo 105 untuk meningkatkan kesehatan keuangannya pada tahun
2007 dan 2008. Hal ini ditunjukkan dengan meningkatnya transaksi Repo pada tahun-tahun
tersebut.
8. Secara keseluruhan, terdapat bukti-bukti yang mencukupi yang menunjukkan kegagalan auditor
dalam audit laporan keuangan Lehman yang dapat digunakan sebagai tuntutan terhadap EY yaitu:
- Auditor gagal untuk melakukan tindakan yang diperlukan untuk menginvestigasi apakah
laporan keuangan Lehman pada tahun 2007 menyesatkan secara material akibat tidak
diungkapkannya transaksi Repo 105.
- Auditor gagal untuk melakukan tindakan yang diperlukan untuk menginvestigasi apakah
laporan keuangan Lehman pada dua triwulan pertama 2008 menyesatkan secara material akibat
tidak diungkapkannya transaksi Repo 105.

Jawaban atas Pertanyaan

Penjelasan mengenai fakta-fakta dari kasus hukum dan keterlibatan akuntan publik (kantor akuntan) pada
kasus studi “The Collapse of Lehman Brothers” adalah sebagai berikut:

Runtuhnya Lehman Brothers bukan hasil satu kesalahan langkah dalam nilai etika yang
dilakukan oleh satu karyawan yang salah arah. Runtuhnya Lehman Brothers adalah efek
kumulatif dari sejumlah kesalahan langkah yang dilakukan oleh beberapa individu dan
pihak. Pelanggaran ini dapat dikategorikan ke dalam tiga tindakan: Kebohongan
diceritakan oleh Chief Executive Officer Richard Fuld; penyembunyian yang didukung
oleh Chief Financial Officer Erin Callan; dan kelalaian atas nama Ernst & Young.

Tiga fakta kesalahan-kesalahan dari kasus hukum dan keterlibatan akuntan publik
(kantor akuntan)

1. Kelalaian etis pertama, terjadi ketika pemasaran perumahan mulai goyah pada tahun
2007, Fuld mengakar dalam model bisnis yang sangat agresif dan leverage, tidak
seperti banyak pemain Wall Street lainnya pada saat itu. Fuld tidak memikirkan
kembali strateginya. Sebagai gantinya, ia beralih ke investasi keamanan yang didukung
hipotek, terus meningkatkan portofolio aset Lehman Brothers menjadi salah satu risiko
yang sangat tinggi mengingat kondisi pasar. Singkatnya, dia keras kepala, tetapi ketika
tiba saatnya untuk mengakui kesalahannya, dia tidak memikul tanggung jawab atau
mengakui kesalahan. Fuld memiliki kesempatan pada tahun 2007 untuk menyuarakan
kekhawatiran tentang kesehatan keuangan jangka pendek banknya dan keterlibatannya
yang besar dalam pinjaman berisiko, dan ia menyia-nyiakannya untuk berkomunikasi
 dengan para investor dan Wall Street bahwa tidak ada kekhawatiran yang dapat diduga
sebelumnya.
[melanggar kode etik Rules of Conduct: 400 Responsibilities to Colleagues]

2. Kelalaian etis kedua, yang mungkin paling terencana dan salah secara fundamental,
adalah persetujuan Callan untuk menyedot aset jauh dari rekening Lehman Brothers
dan ke Hudson Castle, anak perusahaan hantu yang diciptakan untuk kepentingan
neraca perusahaan induknya. Penggambaran yang keliru tentang kesehatan keuangan
ini, yang dilakukan melalui penggunaan Repo 105, adalah upaya untuk memanipulasi
banyak pemangku kepentingan bank dan juga secara jelas menunjukkan masalah yang
jauh lebih besar. Bahkan yang lebih jitu adalah kenyataan bahwa teknik ini digunakan
dalam dua kuartal berturut-turut. Berbagai dokumen yang memeriksa keruntuhan
Lehman Brothers, termasuk kesaksian kongres dan laporan investigasi, menegaskan
bahwa tujuan Repo 105 bukanlah untuk mengurangi pendapatan untuk manfaat pajak
atau efek serupa. Sebaliknya, memindahkan aset dari neraca dimaksudkan untuk
menciptakan ilusi perusahaan yang stabil dan aman.
[melanggar kode etik Rules of Conduct: 200 General Standards and Accounting
Principles pada sub-bab: 201 General Standards]

3. Kelalaian etis terakhir, Ernst & Young, satu-satunya pihak ketiga yang mengetahui
kejadian di Lehman Brothers, gagal mengungkapkan langkah-langkah luas yang
diambil oleh kepemimpinan eksekutif untuk menyembunyikan masalah keuangan.
Sebagai perusahaan akuntan publik bersertifikat yang diharapkan untuk menghormati
dan menjunjung tinggi kode etik industri, Ernst & Young dapat dituduh bertanggung
jawab atas kelalaian dan kurangnya tanggung jawab perusahaan.
[melanggar kode etik Rules of Conduct: 100 Independence, Integrity, and Objectivity
pada sub-bab: 102 Integrity and Objectivity & Rules of Conduct: 300 Responsibilities
to Clients pada sub-bab: 301 Confidential client information]