Final answer:
Litigation, claims, and assessments should be recorded based on a) materiality and ethical considerations. The board of directors and auditing firms are key in corporate governance.
Step-by-step explanation:
Regarding litigation, claims, and assessments, it is important that such matters are recorded based on considerations such as materiality and ethical considerations.
When businesses are faced with potential litigation, it is crucial to assess whether the issue is material, meaning significant enough to affect the decision-making of users of the financial statements.
Furthermore, ethical considerations must guide the recording and reporting of these potential liabilities to maintain the integrity of financial information.
Another element of corporate oversight is the involvement of the board of directors and auditing firms. The board of directors, elected by shareholders, serves as a primary mechanism for corporate governance.
Ensuring that executive actions align with shareholder interests. Auditing firms, meanwhile, play a critical role by reviewing and certifying financial records to provide reasonable assurance that financial statements are free from material misstatement.
In cases such as Lehman Brothers, the failure of corporate governance mechanisms can lead to significant consequences for investors and the market as a whole.
Investors rely on the governance structures to receive accurate financial information, without which their confidence in the market can be severely shaken.