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The Collapse of Lehman Brothers

Case Study Analysis

You are required to:

Read the article adapted by Kate Lahey and Leonie Wood in Financial Accounting in the Real World 3.3. This article is about the collapse of the financial institution Lehman Brothers.

After reading the article you are to answer the following questions in the form of a single report, in the executive report format:

1. What does ‘window dressing’ mean in the context of this article?
2. Using Positive Accounting Theory as the basis of your argument, discuss why would the bank have tried to manipulate the financial statements by understating debt?
3. What qualitative characteristics of the IASB conceptual framework would they have potentially breached?
4. Are firms more likely to engage in ‘window dressing’ their financial statements when they have relatively high levels of debt rather than low levels of debt? Why?
5. Under Positive Accounting Theory, what are agency costs of equity and agency costs of debt? Is it possible to put in place mechanisms to reduce all opportunistic action? Discuss?
6. Using Institutional Theory as your theoretical basis, explain why an organisation might voluntarily elect to make particular financial disclosures?

What to submit

You must submit your answers in the form of a single report, in the following executive report format:

Executive Summary

Use the executive summary to summarise your topic and the key points of what you found in the literature about your topic. This should be no more than two paragraphs. Professional writers usually write part after they have finished the report.

Introduction

An introduction should be a roadmap to your entire report: what the topic was, what you found, what the key points are.

An introduction can take up to half a page. Write this after the literature review and conclusion sections, but before the synopsis.

Report (3,000 words in total)

1. Lehman Brothers ‘window dressing’ discussion (brief, suggest 500 words)
2. Literature reviews for IASB conceptual framework, Positive Accounting Theory and Institutional Theory (detailed, suggest 500 words for each theory)
3. Application of the theories to answer given questions (with in-text referencing) (detailed: suggest 1,000 words).

Conclusion

Summarises the key points of the report.

Reference List

I expect minimum five references. Each reference listed here must also have a citation within the text of your literature review. The reverse is also true: every citation of a source within your literature review must point to a reference here in your reference list.

The assessment criteria

As you can probably guess, there is no single “correct” answer for this assignment, although there can be many “incorrect” answers. You will be assessed on:

• the quality of your scholarship (research, processing information, and finally the ability to present what your found out in a useful way) (80%)
• the quality of your English expression (10%)
• the quality (readability) of your presentation (10%).

You must use APA referencing style for this assignment and you must be consistent: you must reference all sources of your information. A failure to reference properly will attract penalties of up to 5 marks.

Plagiarism or academic misconduct (such as using someone else to write your assignment) will attract worse penalties.