Fraud Cases: Violations of Generally Accepted Accounting Principles (Gaap)

1097 WordsApr 10, 20125 Pages
Fraud Cases: Violations of Generally Accepted Accounting Principles (GAAP) Section 1 In July 2002 the Sarbanes-Oxley Act was passed by the U.S. Senate by a vote of 98 to 0. The bipartisan support for the legislation emanated directly from the investing public’s lack of tolerance for financial statement fraud. Not surprisingly, when formulating its post-Sarbanes technical audit guidance, the Public Company Accounting Oversight Board (PCAOB) made it clear that detecting fraud must be the focus of the audit process. Consider that in the board’s first internal control standard (Auditing Standard No. 2), fraud was mentioned 76 times. The PCAOB has continued its emphasis on detecting fraud in its revised internal control standard,…show more content…
In response to this treatment of landfills on the balance sheet, after its 1988 audit, Andersen issued a management letter to the board of directors recommending that the company conduct a “site by site analysis of its landfills to compare recorded land values with its anticipated net realizable value based on end use.” Andersen further instructed that any excess needed to be amortized over the “active site life” of the landfill. Andersen made similar demands after its audit in 1994. Management never conducted such a study; they also failed to reduce the carrying values of overvalued land, despite their commitment to do so after Andersen’s audit in 1994. 3 4 SEC, Accounting and Auditing Enforcement Release No. 1532, March 26, 2002. SEC, Accounting and Auditing Enforcement Release No. 1532, March 26, 2002. Case 1.1 Waste Management: The Matching Principle 5 Case Questions 1. Consider the principles, assumptions, and constraints of Generally Accepted Accounting Principles (GAAP). Define the matching principle and explain why it is important to users of financial statements. 2. Based on the case information provided, describe specifically how Waste Management violated the matching principle. 3. Consult Paragraph 2 and Paragraph A5 (in Appendix A) of PCAOB Auditing Standard No. 5. Do you believe that Waste Management had established an effective system of internal control over financial reporting related to the depreciation expense recorded in
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