Reference no: EM13589460

On St. Patrick's Day 1992, Chambers Development Company, one of the largest landfill and waste management firms in the United States, announced that it had been improperly capitalizing costs associated with landfill development. Chambers announced that it was immediately expensing over $40 million in executive salaries, travel expenses, and public relations costs that had been capitalized as part of the cost of landfills. Wall Street fear over what this move meant for Chambers' track record of steady earnings growth sent Chambers' stock price plunging 62% in one day-total market value declined by $1.4 billion. Imagine that it is early 1992 and you have just been assigned to work on the Chambers Development audit. In the course of your audit, you find a number of irregular transactions, including the questionable capitalization of costs as described above. Chambers' accounting staff tells you that the company has always capitalized these costs. You do a little historical investigation and find that if all the questionable costs had been expensed as you think they should have been, the $362 million expense would completely wipe out all the profit reported by Chambers since it first went public in 1985.You are reluctant to approach your superior, the audit partner on the job, because you know that a large number of the financial staff working for Chambers are former partners in the audit firm you work for. However, you know that ignoring something like this can lead to a catastrophic audit failure.

Draft a memo to the audit partner summarizing your findings.