Three conditions are often present when fraud exists; Incentives, opportunity, and attitude. All of these conditions can be seen In the fraud at Waste Management. Waste Management was under pressure from other companies within the industry that could offer the same services at lower prices to customers. Dean L. Bankrupt, founder, chairman, and CEO of Waste Management was the driving force behind the fraud.
Bankrupt set the earnings targets, fostered a culture of fraudulent accounting, and personally directed certain of the accounting changes to make the targeted earnings. Bankrupt presented himself as a pillar of the community, all the while knowingly committing fraud to fund his endeavors. He perceived himself as such an entrepreneur and community servant that ten days before his wrongdoings became public he enriched himself with a tax benefit by donating inflated company stock to his college alma mater to fund a building in his name.
The auditor’s objective when evaluating accounting estimates Is to obtain sufficient appropriate evidential matter to provide reasonable assurance eave been developed. ; Those accounting estimates are reasonable in the circumstances. ; The accounting estimates are presented in conformity with applicable accounting principles and are properly disclosed (PEPCO, 2013). In evaluating reasonableness, the auditor should obtain an understanding of how management developed the estimate.
Based on that understanding, the auditor should use one or a combination of the following approaches: ; Review and test the process used by management to develop the estimate. ; Develop an independent expectation of the estimate to corroborate the reasonableness of management’s estimate. ; Review subsequent events or transactions occurring prior to the date of the auditors report (PEPCO, 2013).
TECHNIQUES There are several techniques that Anderson could have used to assess the reasonableness of the accounting estimates Waste Management used in valuing its estimations of salvage values and useful lives for property and equipment including: Compare the salvage values and useful lives to similar property and equipment used by others in the same industry. ; Physical examination of the assets to determine if they have been disposed of or are still in use. ; Review documentation bout the assets in questions to determine if the proper useful lives and salvage values are being used.
Another reason could be that since Waste Management was known to employee people who had worked at Andersen the auditor did not want to mess up their chances of ending a Job at the company so they went along with what the company was doing. Accounting firms could do several things to ensure that auditors do not succumb to similar pressures on other audit engagements. First they can make sure the auditors that they hire are knowledgeable and practice the regulations that are set in place in the auditing profession.
The firms can make it known that they strictly follow the Code of Professional Conduct set forth by the CPA and if it is violated they will be terminated. Firms could also make it clear that the auditors are there to perform audits of companies and that there main responsibility is to the public to ensure that a company’s financial statements are presented fairly and in accordance with GAP.