Understanding the Client’s Business and Industry

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Presentation transcript:

Understanding the Client’s Business and Industry Case 3.7 Waste Management: Understanding the Client’s Business and Industry Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Waste Management Case Relevant Technical Knowledge PCAOB AS #12 – Paragraph #7 “The auditor should obtain an understanding of the company and its environment to understand the events, conditions, and company activities that might reasonably be expected to have a significant effect on the risks of material misstatement.”

Waste Management Case Relevant Technical Knowledge PCAOB AS #5 Paragraph # 29 – outlines nine specific risk factors that are “relevant to the identification of significant accounts and disclosures and their relevant assertions.” Paragraph #32 – there are often multiple components that make up a particular significant account. Each may be “subject to differing risks.”

Waste Management Case Relevant Technical Knowledge PCAOB AS #13 – Paragraph #9 When identifying the “audit procedures to be performed” the auditor should “obtain more persuasive audit evidence the higher the auditor's assessment of risk.” As a result, if the risk is lower, the evidence needed to persuade the auditor decreases. On the other hand, as the risk increases, the evidence needed to persuade the auditor will clearly increase.

Waste Management Case Relevant Technical Knowledge PCAOB AS #12 – Paragraph #52 “The discussion among the key engagement team members about the potential for material misstatement due to fraud should occur with an attitude that includes a questioning mind, and the key engagement team members should set aside any prior beliefs they might have that management is honest and has integrity.”

Psychology Literature - How to Best Acquire Knowledge Feature Repeated Case Experiences with Feedback; and Teach Technical Concepts within Real-Life Contexts Consider the following additional cases: Qwest: Understanding the Client’s Business and Industry Enron: Understanding the Client’s Business and Industry BFA: Related Party Transactions

Epilogue – Waste Management Arthur Andersen and WMI paid $220 million to settle shareholder suits WMI restated earnings, which caused a $6 billion decline in the value of the company shares

Epilogue – Waste Management Top WMI executives were barred from acting as directors of public companies ranging from a few years to indefinitely Arthur Andersen partners related to the engagement were barred from auditing public companies ranging from 1 to 5 years

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