Académique Documents
Professionnel Documents
Culture Documents
This presentation, based upon SEC Litigation release no. 17435, AAER no. 1532 and SEC Press release 2002-44, is intended for use in higher education for instructional purposes only, and is not for application in practice. Permission is granted to classroom instructors to photocopy this document for classroom teaching purposes only. All other rights are reserved. Copyright 2003, 2005 by the American Institute of Certified Public Accountants, Inc., New York, New York.
When
1992 to 1997 the former executives cooked the company's books to meet predetermined earnings targets.
Failed to establish sufficient reserves (liabilities) to pay for income taxes and other expenses
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
2003, 2005 by the AICPA
Cozy Relationships
"I think for all the relevant periods, the chief accounting officers at Waste Management came from Arthur Andersen," said one SEC regulator. "The relationship is too cozy. (CNN.com europe 1/11/2002) Andersen helped perpetrate the scheme, identifying 32 "must-do" steps to cover it up
2003, 2005 by the AICPA
Andersens Involvement
Management capped Andersen's audit fees and advised Andersen that the firm could earn additional fees through "special work. Andersen identified Waste Management's improper accounting practices and quantified much of the impact of those practices on the company's financial statements. Andersen annually presented Company management with what it called Proposed Adjusting Journal Entries ("PAJEs") to correct errors that understated expenses and overstated earnings in the Company's financial statements.
2003, 2005 by the AICPA
Cashing In
Buntrock, Rooney, and Koenig avoided losses by cashing in their Waste Management stock while the fraud was ongoing. For example, just ten days before certain of the accounting irregularities first became public, Buntrock enriched himself with a tax benefit by donating inflated Company stock to his college alma mater to fund a building in his name.
Execs had less incentive to secure the future Why the shift?
Avoid corporate looting Conform to the status quo
2003, 2005 by the AICPA
SEC Reaction
"Our complaint describes one of the most egregious accounting frauds we have seen," said Thomas C. Newkirk, associate director of the SEC's Division of Enforcement. "For years, these defendants cooked the books, enriched themselves, preserved their jobs, and duped unsuspecting shareholders."
2003, 2005 by the AICPA