Andy Frain is an audit senior of a large public accounting firm who has just been assigned to the Usher Corporation’s annual audit engagement. Usher is a public company and has been a client of Frain’s firm for many years. Usher is a fast-growing business in the commercial construction industry. In reviewing the fixed asset ledger, Frain 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 mid-point 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, Andy was told by Vince Nasab, Usher’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 earnings!”
Discuss the issues.
Discuss the issues.
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