Waste Management

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accounting fraud and auditor legal liability c a S eS inc lu de d in t hiS Se ction

4
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4.1 Enron Corporation and Andersen, LLP
Analyzing the Fall of Two Giants

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4.2 Comptronix Corporation 4.3 Cendant Corporation

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Identifying Inherent Risk and Control Risk Factors
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111 119 127 137

Assessing the Control Environment and Evaluating Risk of Financial Statement Fraud
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4.4 Waste Management, Inc. 4.5 Xerox Corporation 4.6 Phar-Mor, Inc.

Manipulating Accounting Estimates
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Evaluating Risk of Financial
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section 4: accounting fraud and auditor legal liability

USE OF CASE
This case vividly illustrates the important role of trust, reputation, and confidence in corporate America, since the fall of both Enron and Andersen resulted from the loss of these critical elements. Because the Enron/Andersen debacle involves one of the largest bankruptcies and perhaps the single most significant audit failure in U.S. history, the level of student interest in this case is high. Thus, the case provides an excellent venue for discussion of many different topics ranging from auditor independence to the nature and intent of financial accounting standards. This case is ideal for use as an out-of-class written assignment or as a basis for class presentation and/or discussion. Either way, an in-class discussion of the issues is critical to vividly highlight the lessons of this case. If the case is to be used for an in-class discussion, we recommend having students read it prior to the in-class discussion, as the case is fairly lengthy. In class, students can meet in pairs or small groups to discuss and compare their conclusions. Once all students have had an opportunity to share their ideas and arrive at a group consensus, the instructor can randomly call on individual students to share their group’s answers with the class. Randomly calling on individual students to share their

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