Garbage In, Garbage Out Waste Disposal Incorporated: An Audit Case
Earnings management, earnings quality, financial statement fraud, estimates, audit failure
Waste Disposal Incorporated (WDI) became a major player in both the domestic and international trash collection industries during the late 1990s by aggressively acquiring a large number of local haulers. The company also diversified into recycling, water treatment, energy, power, and lawn care. This rapid expansion initially resulted in substantial profits and a skyrocketing stock price for WDI. The financial market's desire for continued growth put intense pressure on the company to meet higher profit expectations. Increased government regulation of the waste industry and growing competition from smaller garbage haulers hindered WDI's ability to meet those expectations. When extensive cost‐cutting measures failed to achieve their desired results, WDI's management turned to other strategies to keep the company at the top of the industry.
In this case, you will follow Jane Sweeny, an audit manager employed by Alfred Peterson LLP, as she completes her duties as manager of the WDI 1999 year‐end audit. Included in these duties is a review of the financial records, management's accounting practices, and other relevant details of WDI's audit. The review raises some doubts about the reasonableness of WDI's financial statements in Jane's mind. Jane also discusses her concerns with Peterson's engagement partner and the WDI controller.
Issues in Accounting Education
Ragothaman, S., W. Wilcox and T. Davies, “Garbage in Garbage out: Waste Disposal Incorporated – An Audit Case,” Issues in Accounting Education, Vol. 18:3, August 2003, pp. 307-316.