AC302 Unit8 Discussion - Discussion Topic CA22-6 Mike Crane...

Info icon This preview shows page 1. Sign up to view the full content.

Discussion Topic: CA22-6 Mike Crane is an audit senior of a large public accounting firm who has just been assigned to the Frost Corporation’s annual audit engagement. Frost has been a client of Crane’s firm for many years. Frost is a fast-growing business in the commercial construction industry. In reviewing the fixed asset ledger, Crane discovered a series of unusual accounting changes, in which the useful lives of assets, depreciated using the straight-line method, were substantially lowered near the midpoint of the original estimate. For example, the useful life of one dump truck was changed from 10 to 6 years during its fifth year of service. Upon further investigation, Mike was told by Kevin James, Frost’s accounting manager, “I don’t really see your problem. After all, it’s perfectly legal to change an accounting estimate. Besides, our CEO likes to see big
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: earnings!” Answer the following questions in the Discussion Board: a. What are the ethical issues concerning Frost’s practice of changing the useful lives of fixed assets? The ethical concern surrounding Frost’s practice is that is changing the useful life in order to “inflate earnings” is dishonest. This act creates fake earnings. b. Who could be harmed by Frost’s unusual accounting changes? Investors are the main people who become harmed by their actions. The inflated earnings would give a false sense of where the company actually stood financially. c. What should Crane do in this situation? Since the change in the useful life is unwarranted Crane should document everything in his audit report. Kieso, D. E., Weygandt, J. J., Warfield, T. D. (2013). Intermediate Accounting, 15th Edition ....
View Full Document

  • Winter '15
  • Accounting, Generally Accepted Accounting Principles, Mike Crane, unusual accounting changes

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern