The attcahed is a case study I will need to Rewrite this into my own words please. Same concept but different words.

I. Assignment Questions & Suggested Answers 1. Consider the principles, assumptions and constraints of Generally Accepted Accounting Principles (GAAP). Define the expense recognition principle (sometimes referred to as matching principle) and explain why it is important to users of financial statements. According to the expense recognition principle, costs need to be matched to the revenues that they helped to generate. A key point is that expenses should not necessarily be recognized when the work is completed or a product is produced. Rather, the costs should be recognized when the costs can be \"matched\" to revenue that has been recorded. If a connection cannot reasonably be made between a cost and revenue that has been recognized, an accountant still has a responsibility to try to determine whether there is some type of relationship between the cost and revenue generated. The absolute goal is to try as hard as possible for an accountant to provide the best measure of the profitability and performance of a company. As a result, accountants should attempt to identify as best as possible, how much it cost to generate revenue. This is the basis of the expense recognition principle. 2. Based on the case information provided, describe specifically how Waste Management violated the expense recognition principle. In your description, please identify a journal entry that may have been used by Waste management to commit the fraud. GAAP requires that depreciation expense be determined by allocating the historical cost of assets over the useful life of the asset less the salvage value. When the management team at Waste Management made changes to the estimated useful life and salvage value of several assets, they effectively reduced the depreciation expense, ultimately resulting in overstated income. The reduction of depreciation expense in the current year essentially defers depreciation expense to a future year. The expense recognition principle requires the depreciation expense of an asset to be recognized over its useful life so that the associated expense is recorded in the year in which related income is earned. The arbitrary changes made to the estimated useful lives and salvage values directly violated the matching principle because 1 the depreciation expense recognized in future years would now be unrelated to the production of income in those related future years. In essence, increases to the useful life of assets have the effect of writing up the value of an asset and reducing expenses. This change can have a material impact on the financial statements. These types of changes, that affect the way a user of financial statements values Waste Management, must be properly disclosed as required by GAAP under the full disclosure principle. This principle requires management to disclose sufficient information to allow the user to make a judgment about the financial position of Waste Management. 3. Consult Paragraph 2 of PCAOB Auditing Standard No. 5. Do you believe that Waste Management had established an effective system of internal control over financial reporting related to the depreciation expense recorded in its financial statements? Why or why not? According to Paragraph #2 of PCAOB Auditing Standard No. 5, \"effective internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.\" Waste Management did not have an effective system of internal control over financial reporting related to the depreciation expense recorded in its financial statements. Stated simply, Waste Management's internal control system did not provide reasonable assurance that the transactions were recorded fairly, accurately, and in accordance with GAAP. 4. Consult Paragraphs 5-6 of PCAOB Auditing Standard No. 15. As an auditor, what type of evidence would you want to examine to determine whether Waste Management's decision to change the useful life and salvage value of its assets was appropriate under GAAP? A company is allowed to change the useful life and/or the salvage value of its fixed assets under GAAP if events or circumstances reveal additional information that indicates that a change to the useful life and/or salvage value will more accurately depict the current market situation. Stated simply, there should be a legitimate basis to make any changes to these variables. In addition, according to the SEC, changes to the variables used in estimating 2 depreciation and the resulting impact to investors should be disclosed in the financial statements to be in accordance with GAAP.1 Paragraphs #5-6 of PCAOB Auditing Standard No. 15 specifically highlight that an auditor must obtain sufficient and appropriate evidence. Sufficiency \"is the measure of the quantity of evidence\" needed. The quantity of evidence needed will depend upon the risk of material misstatement and the quality of evidence obtained. The appropriateness of evidence refers to whether the evidence obtained by the auditor is both relevant and reliable \"in providing support for the conclusions on which the auditor's opinion is based.\" In this situation, an auditor should examine relevant information about comparable useful lives used in the industry and monitor the company's actual experience for similar assets in the past to determine if the firm's decision to change the useful life and salvage value of its assets was appropriate under GAAP. Overall, the rationale for changes must be well supported and reasonable. In making this determination, interviews with managers and other relevant personnel would be essential, as each of these estimates are subjective. Ultimately, the events or circumstances resulting in the need for the changes would have to be critically evaluated and corroborated with sufficient and competent evidence by the auditors. After considering all of the available evidence, if the auditors are still unsure about the decision, they could use an independent third party to evaluate the changes to the useful life and/or salvage value that are proposed. 5. Visit the PCOAB website (i.e., www.pcaobus.org), search for the \"tip and referral center\" and review the guidelines. Can you report a violation to the PCAOB anonymously? Assuming that the employee knew that the consolidating entries in the fourth quarter recorded by upper management were fraudulent, do you believe that the employee had a responsibility to report the behavior to the audit committee? Why or why not? Yes, according to the website, the PCAOB does allow you to report a violation in an anonymous manner. However, according to the website, if you so wish to stay anonymous, the 1 3 PCAOB asks \"that you please contact us again, within 24 hours, so that we may ask any important follow-up questions in response to your tip or referral.\" Clearly, there are a number of allowable answers to the second part of this question. The absolute key is for a student to try and justify his or her position. Consider the following acceptable sample answer from a student: Yes, the employee should have reported the fraudulent behavior to the audit committee. Consistent with the notion that ethical behavior is that which conforms to moral rules and principles, the moral action to be taken would have been to report the fraudulent behavior. In fact, when an employee is thinking through his/her ethical decision process, he/she should realize that in the long run, they may be held responsible for their role in helping to prepare fraudulent financial statements. Clearly, the moral action is for the employee to tell the audit committee about the fraudulent entries. 4