1. Understanding the Client’s Business and Industry
Case 3.7
Waste Management:
Understanding the Client’s Business and Industry
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2. 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.”

3. 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.”

4. 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.

5. 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.”

6. 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

7. 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

8. 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