Case 4.4 Waste Management
Waste Management, Inc.
Waste Management, Inc., incorporated in 1968, had become a leader in the industry of waste management services ranging from industrial operations to curbside collection. This company had become synonymous with many different kinds of disposal services that allowed for the company to grow and grow with a solid base over the course of twenty-eight years. Finally in 1996, the company reported total assets of almost $20 billion with net income close to $200 million. However, even with this growth and solid base, the company was feeling competitive pressures and net income was on the decline. Everyone from local to national collection companies were now charging less to the customer and this was taking a major toll on the gross margins and net income of Waste Management. With a balance sheet that was heavily based on equipment and land Waste Management was beginning to see that the only way to keep the company growing was to use depreciation and salvage value manipulation to lower the direct hits of these expenses. Now that the issues were becoming large enough to notice, the SEC began stepping in to investigate the operations, assets and accounting methods that were being used. Due to this, the company issued a release saying they would be amending and restating certain periods of their reporting and issuing new form 10-Ks and 10-Qs. Once the restatement occurred and a $3.5 billion dollar loss was found the company’s incorrect accounting processes were finally exposed. This resulted in net losses for the company as well as debt and equity ratings dropping precipitously. The SEC now launched a formal investigation into the accounting processes and found many misstatements from avoiding depreciation to improper capitalization and failure to accrue to proper liabilities. Many techniques were used and the end result was that many of the management team’s members were named as defendants in this case as it was seen that they were
Waste Management, Inc., incorporated in 1968, had become a leader in the industry of waste management services ranging from industrial operations to curbside collection. This company had become synonymous with many different kinds of disposal services that allowed for the company to grow and grow with a solid base over the course of twenty-eight years. Finally in 1996, the company reported total assets of almost $20 billion with net income close to $200 million. However, even with this growth and solid base, the company was feeling competitive pressures and net income was on the decline. Everyone from local to national collection companies were now charging less to the customer and this was taking a major toll on the gross margins and net income of Waste Management. With a balance sheet that was heavily based on equipment and land Waste Management was beginning to see that the only way to keep the company growing was to use depreciation and salvage value manipulation to lower the direct hits of these expenses. Now that the issues were becoming large enough to notice, the SEC began stepping in to investigate the operations, assets and accounting methods that were being used. Due to this, the company issued a release saying they would be amending and restating certain periods of their reporting and issuing new form 10-Ks and 10-Qs. Once the restatement occurred and a $3.5 billion dollar loss was found the company’s incorrect accounting processes were finally exposed. This resulted in net losses for the company as well as debt and equity ratings dropping precipitously. The SEC now launched a formal investigation into the accounting processes and found many misstatements from avoiding depreciation to improper capitalization and failure to accrue to proper liabilities. Many techniques were used and the end result was that many of the management team’s members were named as defendants in this case as it was seen that they were
Bibliography: Alali, F., & Romero, S. (2012). Auditor changes before, during, and post-section 203 of sarbanes-oxley act. Internal Auditing, 27(1), 25-30. Retrieved from http://bluehawk.monmouth.edu:2048/?url=/docview/1009737322?accountid=12532 Arens, Elder, Beasley, Auditing And Assurance Services: An Integrated Approach- 14th Edition. Chapter 4. Congress, United States. Sarbanes Oxley 2002. 2002. fl1.findlaw.com/news.findlaw.com/cnn/.../sarbanesoxley072302.pdf (accessed March 2, 2013). PCAOB US. 1989. "PCAOB AU Section 342 Auditing Accounting Estimates." PCAOB. Accessed March 2, 2013. http://pcaobus.org/Standards/Auditing/Pages/AU342.aspx. Securities and Exchange Commission, Waste Management Founder, Five Other Former Top Officers Sued for Massive Fraud, http://www.sec.gov/news/headlines/wastemgmt6.htm (March 2002).