Failure of the Lehman shows the way of connection between the regulation and action management arrangement. The consequence of this case had a significant impact on the business responsibilities and professional ethics of auditors and managers. In this aspect, auditors cannot provide its services to its client who is registered and listed out of the country because the new standard which is framed by the government for managing the audit risk and prevent the auditor from future audit failure are not applicable to that entity (Stahl and et al. 2016). Instead of following the rational approach for dealing with challenges face by the company, management should follow the proactive approach. Management should give up the high growth strategy if the cost is higher than its benefit and if it is not possible to achieve within the specified time. As already indicated Lehman changes its strategy and get involved in the different and complicated path as compared to its present business activities. This may be regarded as a very risky strategy as investing the money in an area where the employee is not experienced, may lead to failure of the company. Therefore for gaining the confidence of shareholders management are required to follow high-quality governance practice and standard. U.S government has passed the Sarbanes-Oxley Act 2002, which protect helps to prevent the fraudulent accounting practices from managers (Ahluwalia and et al. 2016). Top management has obligation for certification of the accuracy of the reported financial statement. Moreover, auditor also has to follow the rules designed by the security exchange commission. Because of all these rules and regulation, shareholders will able to rely on the company.
Ahluwalia, S., Ferrell, O.C., Ferrell, L. and Rittenburg, T.L., 2016. Sarbanes–Oxley Section 406 Code of Ethics for Senior Financial Officers and Firm Behavior. Journal of Business Ethics, pp.1-13.
Stahl, G.K., Miska, C., Noval, L.J. and Patock, V.J., 2016. IN publicized THE corporate WAKE scandals. Readings and Cases in International Human Resource Management, p.416.