Creative Accounting

Creative Accounting

The creative accounting practices in the 1990’s orchestrated by Waste Management, Inc was the largest accounting scandal at the time and became the catalyst to a series of high profile accounting frauds that brought about the Sarbanes-Oxley Act of 2002 (Eichenwald, 2002). Waste Management's senior officers, at that time, violated federal securities laws by materially falsifying and misleading financial statements filed with the SEC; statements approved by the notorious fraudulent accounting audit firm, Arthur Andersen LLP (Commission, 2001). The inflated pre-tax earnings of $1.43 billion, along with other understated elements of tax expense, cost investors over $6 billion in market value (Commission, 2002). These actions demonstrated unethical business practices, corporate fraud and failure to uphold fiduciary duties to the corporation, shareholders, and stakeholders; not to mention, a precursor to one of the worst financial crisis in present day history (Ryan, 2009).

History

Dean Buntrock and Wayne Huizenga founded Waste Management in 1968 (Wilson, Porter, & Reiff, 2005). Based out of Chicago, WM grew throughout the years through mergers and acquisitions, and went public in 1971 (Wilson et al., 2005). By 1993, the WM claimed $10 billion in annual revenue and employed approximately 75,000 employees (Wilson et al., 2005). This point in history was where the creative accounting became more than just an accounting error, but “the most egregious accounting frauds we have seen (Commission, 2002).” In 1996, co-founder Dean Buntrock resigned as CEO, and WM went through four CEOs, during which time, the magnitude of the securities fraud began to unravel. Despite the dilemmas facing WM, in 1998, a Texas based company, USA Waste Services Inc., acquired the corporation, keeping the name of Waste Management Inc (the Company), while maintaining headquarters in Texas along with USA’s team of officers (ActionPA.org, 1998). The new Company...