Five years on from that fateful 15 September 2008, Lehman Brothers' collapse is seen as the ignition spark that unleashed the on-going effects of the global financial crisis.
Lehman Brothers' bankruptcy will also be remembered in history as the epitome of unsustainable growth and corporate mismanagement.
Influential figures of the accounting industry have shared their views on how the downfall of the American investment bank has changed the rules of the game for the profession.
This is the second instalment in a series of articles aimed at identifying what lessons can be drawn from the credit crunch and what the profession could do to prevent another financial debacle.
Batten down the hatches
For the Chartered Institute of Management Accountants technical specialist Peter Simons, the starting point for the discussion should be what a return to "business as usual" after the crisis would mean.
"While most of us still hoped for a speedy return to business as usual, a new consensus began to emerge: that the era of readily available cheap credit fuelling consumer spending might not have been business as usual but a period of hubris. That form of economic growth might not have been sustainable," Simons says.
Simons emphasises the credit crunch was not just a short term liquidity problem. As a result, companies had to batten down the hatches, implement austerity measures and ride out the storm, as he calls it.
"Cutting costs became a priority but leaders recognised the need to balance this austerity with continuing to invest in developing their competitive position. Achieving this balance is always a challenge. It requires a keen understanding of the business model and the drives of cost, risk and value across its value chain," Simons says.
Roll up sleeves
Five years ago, as Simons recalls, management accountants were called upon "to roll up their sleeves" and access the operational data that leads to financial outcomes, "so as to present better management information and provide more reliable forecasts."
Simons says in a post crisis world, the role of management accountants have become more critical for companies as they can provide strategic management information.
"Companies would still need to achieve growth but to be successful they would need to be more clever to do so in a deleveraged era of austerity. This requires better management information, including the ability to analyse performance [...] so as to inform the occasional big decisions and the on-going performance management," Simons says.
Public interest audit
RSM International global leader of quality and risk Bob Dohrer says that as a result of the financial crisis, there is a higher demand for more relevant financial information.
"Decision-makers, regulators and other stakeholders who use financial information to make investment and other decisions are demanding more information about companies than ever before, especially information regarding risks associated with the company," Dohrer says.
Dohrer, who is also the chairman of the Forum of Firms, says although the audit profession has heard this demand "loud and clear" and is responding appropriately, some stakeholders are not entirely satisfied.
"Auditors understand that the days of three paragraph boilerplate auditor's reports with a pass/fail grade have come and gone and that stakeholders want information about the audit directly from the auditor," he says.
In that sense, Dohrer reminds that the International Audit and Assurance Standards Board issued has proposed auditor reporting standards to meet this demand and adds:
"Auditors in general believe that serving the public interest includes sharing more information they have gained in an audit with those using information to make important decisions."
Dohrer feels auditors remain united in the position that they should not be the original source of information about the company itself and acknowledges this reaction may disappoint some stakeholders.
"We understand our important role in the financial reporting supply chain but cannot serve the public interest by ourselves; we need everyone to step up their game, including companies themselves," he adds.
Knee-jerk regulation
At CPA Australia, chief executive Alex Malley says the fallout and the uncertainty stemming from the global financial crisis continues. Amidst the current "economic and social turbulence", he says, a challenge for the profession emerges: restoring trust and transparency in the markets and corporate activity.
However Malley observes a tendency towards over regulation in an attempt to manage risk.
"While understandable in the wake of a financial crisis, [over regulation] is a real issue and an on-going challenge for the profession. I'm a strong advocate of a measured approach to regulation, where reforms are grounded in facts and substantive analysis".
Malley believes that in today's interconnected world, this tendency creates regulatory conflict and challenges for the profession, as it has to work with differing laws and regulation across legal boundaries.
"In practice we tend to see knee-jerk regulation-making when we seem to have little evidence that additional regulation will achieve its stated objective," Malley says.
Malley calls instead for the profession to drive initiatives that improve trust and transparency, for him, a central challenge for the accounting profession.
"The accounting profession can influence stronger governance frameworks, business leadership and management. We need to continue to develop theory, standards and practices that are appropriate for the current products and practices of financial markets."
According to Malley, better information and education and more effective regulation would also contribute to improve the viability and sustainability of the markets.
"Professional accountants can help ensure business decisions are not only recorded and reflected appropriately but they are the right ones," Malley concludes.
Related articles
Lehman Brothers, a wake-up call for the profession
Lehman Brothers to repay creditors, PwC UK