The errors relate to writing off tax assets that were booked on transactions between subsidiaries starting in 2007. The corrections amount to more than $500 million over 4 years starting 2007.

Other than the accounting issue the company will definitely get hit with lower revenue in the next year due to the ongoing turmoil in the Middle East and North Africa.

When most of its competitors are increasing their disclosures regarding loan losses and related data during the past three years, Wells has shunned the practice. That makes me wonder, what is it that Wells is hiding!

Martin Kelly, Lehman’s global financial controller, stated that the transactions had “no substance”—their “only purpose or motive . . . was reduction in the balance sheet.”

Other Lehman executives described Repo 105 transactions as an “accounting gimmick” and a “lazy way of managing the balance sheet as opposed to legitimately meeting balance sheet targets at quarter-end.” Bart McDade, Lehman’s president and chief operating officer in 2008 (the year the company filed for bankruptcy), in an email called Repo 105 transactions “another drug we are on.”

This drug definitely was fatal for the organization which filed for bankruptcy in 2008!

 In terms of making a decision about convergence, for Japan it will be around 2012. For US, the Securities and Exchange Commission is expected to decide whether the FASB and IASB (International Accounting Standards Board) have made sufficient progress on convergence, and whether IFRS can eventually be incorporated into the U.S. financial reporting system.

The lawsuit accuses BDO of careless auditing practices of Grand Court, a company engaged in servicing, acquisition, development, and management of senior living communities. An interesting factoid is that prior to hiring BDO Grand Court had fired their auditor Deloitte & Touche because the auditing firm did not agree with Grand Court about accounting procedures and insisted on appraising the value of all of Grand Court’s multi-family homes, rather than just a sampling of properties. Allegedly BDO agreed to use the less costly method of sampling and so they were brought in to replace Deloitte.

The reason for the delay is that the company is undergoing an accounting review which as of date has cost the company $22 million; the review is still not complete. There is a restatement in line, but there is no indication as to what its impact will be on the assets and liabilities. The company has been releasing piece meal information- recently it reported the size of its cash balance and an estimate for its revenues by segment for 2010. But that is all; the whole picture is still missing.

The company believes it will miss the latest deadline for filing its financials and so may end up getting delisted from NYSE and become an over the counter stock!

The errors were mainly related to the use of “Fresh State Accounting”, a form of accounting used by companies that have exited bankruptcy. But unlike most other restatements, this one has a positive impact on the company’s financial statements. The revised results have led to an increase in net income of approximately $25 million for the nine months ended September 30, 2010. The company’s book value also has been increased by 10 cents to $44.2 due to the restatement.

The current practice in many countries requires that the banks wait to write down the value of financial asset until they have hard evidence of the loss. But the proposed rule will require that the banks predict the losses ahead of time, so they have more time to find the extra funds to cover the losses.

This rule will help address one of the main issues in the recent financial crisis ; by the time the financial institutions recognized the loan losses it was too late in the game. The taxpayers funded bailout money was the savior for many of these financial institutions.

The company said that “Serious accounting irregularities have been brought to the attention of the board as a result of which the company will be carrying out an immediate investigation to consider the financial implications.”  It further stated that it had “strong reason to believe” profits for 2010 would be “materially below market expectations”, about £22 million, after the irregularities were uncovered internally.

Shareholders suffered last year due to poor perfomance of the company and have taken a further 25% hit since the business reported weak first-half results in September. This news is sure to increase the suffering of the shareholders.

The news will definitely hurt the company stock once the trading begins after the holiday period ends.