Question

This is from a case Called

Waste Management, Inc

Manipulating Accounting Estimates

and here is the required questions

REQUIRED

1. [1] Review Waste Management’s Consolidated Balance Sheet as of December 31, 1996. Identify accounts whose balances were likely based on significant management estimation techniques. Describe the reasons why estimates were required for each of the accounts identified.

1. [4] The Waste Management fraud primarily centered on inappropriate estimates of salvage values and useful lives for property and equipment. Describe techniques Andersen auditors could have used to assess the reasonableness of those estimates used to create Waste Management’s financial statements.

1. [6] Several of the Waste Management accounting personnel were formerly employed by the company’s auditor, Arthur Andersen. What are the risks associated with allowing former auditors to work for a client in key accounting positions? Research Section 206 of the Sarbanes−Oxley Act of 2002 and provide a brief summary of the restrictions related to the ability of a public company to hire accounting personnel who were formerly employed by the company’s audit firm.

Answer 1

Answer :-

1 ) :-

They utilized assessments for vehicle and hardware, landfill cost, the expenses in addition to evaluated income in abundance of billings - capitalization of misfortunes .

4 ) :-

• The inspectors could have thought about Waste Management's gauge for helpful lives to those of different organizations in the business and to other devaluation sources (MACRS).
• They additionally could have sought organizations in the business for rescue esteems on property and gear just as utilizing the market cost.
• The accompanying table demonstrates the helpful lives for various classes of property utilized by Waste Management, Allied Waste (a contender), and MACRS (valuable lives required for duty purposes).

	Waste Management	Allied Waste	MACRS
Vehicles	3-20 yrs	3-15 yrs	5 yrs
Equipment	3-20 yrs	5-10 yrs	7 yrs
Buildings	10-40 yrs	30-40 yrs	39 yrs
Leasehold Improvements	Life of lease	n/a	15 yrs

6 ) :-

• Area 206 states that the CEO, controller, CFO, and head bookkeeping officer (or counterparts) can't have been utilized by the review firm amid the one year time frame before the review.
• To put it plainly, any review firm worker needing to look for work with the organization must hold up a one-year "chilling" period.
• This segment of Sarbanes-Oxley endeavors to control the dangers of individual connections of organization officers and review firms/groups.
• This would weaken the autonomy of the evaluators. The organization officials could without much of a stretch impact the review through their associations with the evaluators.
• Likewise, the examiners and the executives could plot or potentially proceed in awful practices.
• Another hazard is "insider information" of the review – that is, the organization could comprehend what the review firm will check and in this manner figure out how to shield any misrepresentation from being distinguished.