Change in Estimate Mike Crane is an audit senior of

Change 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 earnings!” Answer the following questions.(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?View Solution:
Change in Estimate Mike Crane is an audit senior of
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