You are auditing the financial records of a com- pany and are reviewing the depreciation compu- tations. Included in the assets are two buildings and numerous machines in each building. One of the build- ings is used to manufacture components of toys and the other for assembly and packing, using the manufactured compo- nents as well as others purchased from suppliers. You see that the company uses straight-line depreciation over 40 years for the buildings and 20 years for the machinery. You decide to ask the CFO about these calculations, and he replies, We use 40 years for the buildings because it is close to the 39 we use for tax. And our best guess is that we will replace the machines twice while we use the building. And the method is easy to use and most companies use it, dont they? Or have things changed that much since I was in college? You feel as if you have annoyed the CFO with your questions, so you decide to leave. As you walk back to your office, you recall from earlier in the audit that the company uses FIFO and LIFO for differ- ent segments of its inventory and that all top-level managers receive bonuses based on reported income.

Required From financial reporting and ethical perspectives, what depreciation methods and lives would you recommend?