Case 2.2: Waste Management: Due Care [PDF]

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Case 2.2 Waste Management: Due Care



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Waste Management Case Relevant Technical Knowledge PCAOB QC #20 - Paragraph #3  “A firm has a responsibility to ensure that its personnel comply with the professional standards applicable to its accounting and auditing practice. A system of quality control is broadly defined as a process to provide the firm with reasonable assurance that its personnel comply with applicable professional standards and the firm's standards of quality.” 2



Waste Management Case Relevant Technical Knowledge PCAOB AS #13 - Paragraph #7  “auditor's responses to the assessed risks of material misstatement, particularly fraud risks, should involve the application of professional skepticism in gathering and evaluating audit evidence.”



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Waste Management Case Relevant Technical Knowledge SARBOX Section 203  the lead audit or coordinating partner and the reviewing partner must rotate off of the audit every 5 years SARBOX Section 206  requires a “one year cooling off period” before an audit firm employee accept a position as CEO, CFO, Controller, or Chief Accounting Officer of a former client 4



Psychology Literature How to Best Acquire Knowledge 



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Feature Repeated Case Experiences with Feedback; and Teach Technical Concepts within Real-Life Contexts Consider the following additional cases:    



Enron: Independence The Fund of Funds: Independence Sunbeam: Due Care WorldCom: Professional Responsibility



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Epilogue – Waste Management 



Arthur Andersen and WMI paid $220 million to settle shareholder suits



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WMI restated earnings, which caused a $6 billion decline in the value of the company shares



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Epilogue – Waste Management 



Top WMI executives were barred from acting as directors of public companies ranging from a few years to indefinitely



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Arthur Andersen partners related to the engagement were barred from auditing public companies ranging from 1 to 5 years 7