Ethics: Changes in Estimate
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
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?
b. Who could be harmed by Frost’s unusual accounting changes?
c. What should Crane do in this situation?
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Accounting changes and error
analysis. Intermediate accounting (16th ed.). (p. 1323). New York, NY: John Wiley &
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