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.

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!

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 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 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.

The complaint states that the company overstated its revenues in 2007 by booking invalid sales and engaging in improper revenue recognition practices. Two key cases highlighted in the complaint are – false booking of sales of $2.6 million by NutraCea to Bi- Coastal Pharmaceutical Corp and improperly recording revenue on bill and hold transactions – $1.9 million sale of product to ITV Global, Inc. (“ITV”) in the fourth quarter of 2007.

As a result of these two transactions alone, NutraCea overstated its product sales revenue by 36.8% and misstated its operating loss by nearly 7% for fiscal year end 2007.

Ernst & Young obviously maintained that they did nothing wrong. Well technically they are right, they did comply with Generally Accepted Accounting Principles, or GAAP.

The crux of the case should be the intent. Recently there has been news about various organizations being caught in accounting fraud, and in most cases the auditors had signed off on the financial statements. Should the auditors be responsible for just ensuring compliance with accounting rules or should they be held accountable to ensure that their clients’ intent is not to hide material facts.

This definitely is a case  accountants all over the world will keep a close eye on. This might define how accounting world would function in the future.

TUI maintains that they have good working relationship with KPMG. KPMG on the other hand said that relations with some of TUI’s directors had become more strained after the incident. Definitely in this case TUI is not letting bygones be bygones.

First, the SEC rescinded rules which authorized the payment of bounties for providing information leading to the recovery of civil penalties for insider trading violations, which were previously authorized by the Insider Trading and Securities Fraud Enforcement Act of 1988. In its place, the Dodd-Frank Act established a broader program for monetarily awarding whistleblowers. The new program authorizes the SEC to award persons who provide “original information” that leads to the successful enforcement of certain judicial or administrative actions. Potential awards range from 10% to 30% of collected monetary sanctions. Unlike the former insider trading bounty program which authorized awards only for violations of insider trading laws, the new program authorizes awards for the violation of any federal securities law.

The SEC additionally amended certain rules to conform to the new Section 404(c) of the Sarbanes Oxley Act of 2002 (Sarbanes-Oxley), added by the Dodd-Frank Act, which exempts non-accelerated filers from having to include in their annual reports an independent auditor’s attestation report on internal control over financial reporting. Accordingly, the SEC amended Item 308 of Regulation S-K to require filers to include in their annual reports the disclosure regarding this attestation report only if such an attestation report is actually included in the annual report. Rule 2-02(f) of Regulation S-X similarly clarifies that audit reports need not include an assessment of a non-accelerated filer’s internal control over financial reporting.