Sec and Waste Management

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CASE STUDIES Case Study 1 (13.1) Issues 1. The SEC is often called the “watchdog” of corporate America. How does it assist in preventing fraud? 2. According to the summary, why did the Waste Management executives commit the fraud? 3. You are an ambitious manager in the sales department of a company and have just received the upcoming year’s targeted earnings report. You are concerned that top management has set revenue targets for your division that are practically unreachable. However, anticipating a promotion to vice president of sales if your division maintains good performance, you are determined to reach management’s goal. What actions would you take to satisfy management’s expectations and still maintain your…show more content…
The company’s revenues were not growing fast enough to meet these targets, so defendants instead resorted to improperly eliminating and deferring current period expenses to inflate earnings. They employed a multitude of imp roper accounting practices to achieve this objective. Among other things; the complaint charges that defendants: * Avoided depreciation expenses on their garbage trucks by both assigning unsupported and inflated salvage values and extending their useful lives, * Assigned arbitrary salvage values to other assets that previously had no salvage value, * Failed to record expenses for decreases in the value of landfills as they were filled with waste, * Refused to record expenses necessary to write off the costs of unsuccessful and abandoned landfill development projects, * Established inflated environmental reserves (liabilities) in connection with acquisitions so that the excess reserves could be used to avoid recording unrelated operating expenses, * Improperly capitalized a variety of expenses, and * Failed to establish sufficient reserves (liabilities) to pay for income taxes and other expenses. Defendants’ improper accounting practices were centralized at corporate headquarters, according to the complaint. Each year, Buntrock, Rooney, and others prepared an annual budget in which they set earnings targets for the upcoming year. During
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