Waste Management Case

1123 Words Feb 28th, 2012 5 Pages
Fraud Triangle
Identifying fraud indicatives of each of three conditions: incentives, opportunities, and attitudes

Significant Management Estimation
Identifying balances based on significant management estimation techniques

Inherent Risk associated with Estimation
Accounts involving significant management estimation viewed as inherently risky

Auditor’s responsibilities for examining management-generated estimates
AU Section 342
AU Section 342, Auditing Accounting Estimates, provides auditors guidance on gathering and evaluating sufficient appropriate audit evidence to support significant accounting estimates provided by the client on financial statements, in accordance with generally accepted auditing standards. It is
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• Testing the calculations used by management to translate the assumptions and key factors into the accounting estimate.
Employment of former auditors by client in key positions
Risks associated with allowing former auditors to work for a client in key accounting positions
There are many risks involved in allowing former auditors to take an executive, or key, position in client organizations. These risks range in severity and risk level. However, the one common underlying aspect of the risk involved is that independence on the auditor’s side is impaired. One of the key factors in performing the audit of a public company, even a non-public for this matter, is that independence must be kept at all times. Having a former coworker (auditor) be employed in a position to make significant decisions at a client’s puts this independence factor at stake. It allows for the easiness of encouraging, or bribing, the auditors to perform the tasks as the client sees it more convenient, as seen in the Waste Management, Inc. case. If having one individual fill a senior-level position is risky, having a large number of them is riskier, and this should have raised many flags in the Waste Management case.
Sarbanes-Oxley Act of 2002, Section 206
As a result of many former auditors being employed by clients in key positions, the Sarbanes-Oxley Act of 2002 included a section addressing the conflicts of interest

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