...In February 2010, Diamond Foods Inc.’s then-Chief Financial Officer Steven Neil asked his team of accounts an unusual question. How much could the snack-food company pay for walnuts that year and still top Wall Street estimates? According to the complaint released by the Securities and Exchange Commission, the answer was 10 cents less than the expected 82 cents that the company was expected to pay. To cover the difference, Mr. Neil devised a plan to put the extra cost into the following year which all the company the report better-than-expected results. The alleged fraud gave the company a string of earning beats and a strong rise in its stock. It also allowed Diamond Foods Inc the necessary currency needed to clinch a deal to buy the Pringles snack brand from Proctor and Gamble for $2.35 billion. Everything unraveled after the Wall Street Journal and some skeptical investors questioned the company’s accounting. According the Diamond Foods Inc, they conducted an internal investigation and ultimately restated its finances for the 2010 and 2011 fiscal years. The restated numbers showed the stock price per shared dropped from $90 a share to $13 a share. The fraud also had a negative impact on acquiring the Pringles snack brand. Diamond fired Mendes and Neil in early 2012 and restated its earnings after an internal probe concluded that the accounting was improper. (Hamilton, 2014) On January 9th 2014, the Securities and Exchange Commission charged Diamond Foods and its former SFO...
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...Diamond Foods Financial Fraud Scandal Adrienne M Somers David F McCormick Acct 320 February 27 2012 In April 2011, Diamond Food Inc (DMND), the nation's largest walnut processor and maker of Emerald nuts announced plans to buy Pringles from Proctor and Gamble for $1.5 billion in stock (Reuters, 2012). This move was part of the company's aggressive growth strategy to become a leader of the snack food industry. Former chief executive officer, Michael Mendes, and former chief financial officer, Steven Neil, spearheaded this effort. However, plans were postponed as questions arose about two large payments that were made to walnut growers in August of 2010 and September 2011 for $20 million and $60 million respectively. An internal audit of the financial records found that these payments were improperly booked into the wrong accounting period, which artificially reduced the company's costs, and boosted earnings in that period making the company look more profitable than it actually was. It is a technique known as earnings management. Because of the probe, Michael Mendes and Steven Neil were removed from their positions as CEO and CFO (Dalai, 2012). The financial records for 2010 and 2011 were found to be unreliable meaning that would have to restate their financial results for both these years. This scandal caused Diamond Foods Inc shares to fall by 40 percent. It seriously damaged the reputation of the company and the trust of their shareholders. It also ruined any chance...
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...Diamond Foods, Inc.: Anatomy and Motivations of Earnings Manipulation Mahendra R. Gujarathi ABSTRACT: Diamond Foods is America’s largest walnut processor specializing in processing, marketing, and distributing nuts and snack products. This real-world case presents financial reporting issues around the commodities cost shifting strategy used by Diamond’s management to falsify earnings. By delaying the recognition of a portion of the cost of walnuts acquired into later accounting periods, Diamond Foods materially underreported the cost of sales and overstated earnings in fiscal 2010 and 2011. The primary learning goal of the case is to help students understand the anatomy and motivations of earnings manipulation. Specifically, students will have the opportunity to (1) apply the FASB’s Conceptual Framework to a real-world context, (2) determine the nature of errors and compute their numerical effects on financial statements, (3) understand motivations for earnings management and actions needed for managing earnings of future years, (4) explain the anatomy of financial reporting fraud by reconstructing journal entries, (5) prepare comparative financial statements for retroactive restatements, (6) explain the rationale for clawback provisions in compensation contracts, and (7) understand the difference between the real and accrual-based earnings management. Keywords: earnings management; financial statement fraud; restatements; error correction; clawback provision; Conceptual Framework...
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...Diamond Foods 2014 San Francisco-based Diamond Foods Inc, and two former top executives deceived investors, by lying about walnut costs to boost earnings. Diamond Foods former former Chief Financial Officer, Steven Neil, directed a scheme to under report how much money the company paid walnut growers by delaying the recording of the payments into later fiscal periods. Which allowed the company to report higher net income and beat the expectations of analysts for fiscal quarters 2010 and 2011. The CFO devised special payments to satisfy Diamond’s walnut growers and bring amounts paid to growers closer to market prices, but wrongly omitted parts of those payments from the year-end financial statements. Instead of correctly recording the costs on Diamond’s books, Neil told his finance team to record the payments as advances on crops that had not yet been delivered. Even though the payments were for prior crop deliveries, Diamond was able to manipulate walnut costs in its accounting to hit quarterly targets for earnings per share (EPS) and exceed estimates by analysts. (SEC 2014). Carters Inc 2010 Carter’s Inc., the world’s biggest maker of children’s clothing Vice President, Joseph Elles persuaded customers such as Kohl’s to make huge unauthorized purchases of Carters clothing at unauthorized discounts, which were not disclosed. The hidden discounts, caused Carter’s to overstate profits Elles falsely manipulated the dollar amount of discounts that Carter's granted to its largest...
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...Financial Statement Restatement Financial Accounting/ ACC537 Myrtle Clark Sheila Haskins April 14, 2014 In this paper I will discuss the restatement of Diamond Food Inc.’s financial statements. The errors in accounting principles involved and what effect it had on financial statements. How changes affected the stockholders. In February 2012, Diamond Foods Inc., issued a statement that they have to restate the financial statements for 2010 and 2011. Diamond Foods Inc., was forced by the audit company y to restate earnings after an extensive investigation. It was discovered that “internal controls were inadequate and that certain grower payments for the 2011 and 2010 crops were not accounted for in the correct periods” (Harris, 2012). After the investigation, the Board of Directors took control of the company. The board dismissed the CEO and CFO and placing them on administrative leave. The pending deal where Diamond Foods were to acquire the Pringles brand from Proctor & Gamble is also in jeopardy. This deal was at a value of $1.5 billion which would have given Diamond Foods Pringles potato chips and other products. Diamond Foods remained confident that the financial statements were accurate. the terms The contract between Diamond Foods and Proctor & Gamble, gave Proctor & Gamble an option to withdraw from the deal based on any problems with the financial statements of Diamond Foods. The audit committee investigation was then taken up by the Securities...
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...Diamond Foods Accounting Scandal BACKGROUND: Founded in 1912 as a walnut grower cooperative, Diamond Food’s primary business involved buying walnuts from local California growers, processing the product, and reselling it. The San Francisco-based company converted from a cooperative to a public corporation in July of 2005, issuing its initial shares for $17. By 2010, Diamond Foods (DMND) had expanded and acquired a number of snack food companies including Kettle Brand® Chips and Pop Secret® popcorn and was negotiating the acquisition of the Pringles brand from the Procter & Gamble Company (Diamond Foods, 2014). The addition of the Pringles brand would make Diamond the second-largest global snack foods company behind PepsiCo, Inc., owner of the Frito-Lay brand (Byron & Ziobro, 2011). Although the new ventures took precedence, Diamond’s walnut business remained the highest commodity cost to the company. In order to maintain relations with the growers, Diamond had to assure they offered a competitive price for the product; however any recorded increase in walnut price would decrease both the company’s reported earnings and their reported earnings per share (EPS). Despite rising walnut prices, the company consistently posted EPS that defied analyst projections. Between the 2010 SEC Form 10-Q second quarter filing and the SEC Form 10-K of FY 2011, the price of Diamond stock jumped from $39 dollars per share to $90 per share (SEC, 2014). On January 9, 2014, the Securities and...
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...Diamond Food Case Project Requirement 1 1. Manipulation of commodity cost. As a common practice in the company, management would instruct related accounting employee to decrease the commodity costs by a small incremental at a time, until the desired earning numbers for that period was achieved. 2. Special accounting treatment of grower payments. Diamond made “continuity payment” and “momentum payment” to manipulate cost to growers. These payments were claimed to be advances for multi-year supply from growers, hence the company delay the recognition of these amounts as costs in later periods. However, payments to growers were actually for the crop in prior year although Diamond insisted the payments were for current year; and growers who already cancelled their contracts with Diamond still received this payment, which suggested that these payments, in substance, should have been for previous periods. Diamond used this controversial accounting method to continuously defer part of its payments to later periods, which reduced current costs and increased net income. Conversely, Diamond also increased its current cost by making more payment, when its EPS exceeded the expectation. The “continuity payment” method was continuously applied, and it created a cost pool in future period, which gave the company room to adjust costs and expenses in accordance with the management’s goals. Requirement 2 No, both recording of “continuity” payments and “momentum” payments did not...
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...In early 2014, Diamond Foods Inc. paid $5 million to settle its accounting fraud. The company’s CFO manipulated the cost of walnuts by pushing some of the cost to a later period. This practice led to higher income and misled investors in 2010 and 2011. Diamond restated its 2012 financial statements. In reviewing the SEC filing of Diamond Foods, Inc., I found that its auditors at first issued an unqualified opinion on its 2012 financial statements. “In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Diamond Foods, Inc. and subsidiaries as of July 31, 2012 and 2011 …” However, due to the discovery of the accounting scandal, the firm subsequently restated its opinion in its 2013 audit report: “Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of July 31, 2013 …” In the company’s restated financial statements of 2012, the company stated that an internal investigation was launched and found sufficient evidence that payments for Walnut was recorded in the wrong period, and quarterly estimates of its walnut cost was also wrong. In addition, the company’s accounts payable and accrued expenses related to the walnut business is also misstated for the previous 2 years. The company performed an extensive review of its invoices and made this determination. It’s important to notice that in 2007, the auditor issued...
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...ACCT 4400 Case Set 1 Case Set 1 covers Ethics and Professionalism in Auditing, and consists of the following cases: Case 1-1: Accounting Scandal Case 1-2: Audit Dilemma Case 1-3: Independence Case 1-1: Accounting Scandal This case focuses on the Diamond Foods accounting scandal. To complete this assignment, you should first conduct research using the Internet to better understand Diamond Foods and its fraud. Second, answer the following questions. Questions: 1. What was the motivation for the Diamond Foods scandal? Be specific, simply stating “greed” is insufficient. 2. (a) In general, what is a conflict of interest? (b) What role did the board of directors at Diamond Foods play in creating conflicts of interest at the company? (c) How should an auditor have responded to the conflicts of interest at Diamond Foods? 3. (a) What are momentum payments? (b) What was the role of momentum payments in the Diamond Foods scandal? 4. How did Diamond Foods fund its aggressive growth strategy of multiple acquisitions during a short period of time? Case 1-2: Audit Dilemma Assume that you have just started as a staff auditor at a large accounting firm. For your first audit, you are assigned to E&K books, a public company. Your firm has been auditing this client for several years, and has always given E&K clean opinions. A senior, Ella, will lead fieldwork on the E&K audit. You are glad to be working with Ella because...
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...ISSUES IN ACCOUNTING EDUCATION Vol. 30, No. 1 2015 pp. 47–69 American Accounting Association DOI: 10.2308/iace-50948 Diamond Foods, Inc.: Anatomy and Motivations of Earnings Manipulation Mahendra R. Gujarathi ABSTRACT: Diamond Foods is America’s largest walnut processor specializing in processing, marketing, and distributing nuts and snack products. This real-world case presents financial reporting issues around the commodities cost shifting strategy used by Diamond’s management to falsify earnings. By delaying the recognition of a portion of the cost of walnuts acquired into later accounting periods, Diamond Foods materially underreported the cost of sales and overstated earnings in fiscal 2010 and 2011. The primary learning goal of the case is to help students understand the anatomy and motivations of earnings manipulation. Specifically, students will have the opportunity to (1) apply the FASB’s Conceptual Framework to a real-world context, (2) determine the nature of errors and compute their numerical effects on financial statements, (3) understand motivations for earnings management and actions needed for managing earnings of future years, (4) explain the anatomy of financial reporting fraud by reconstructing journal entries, (5) prepare comparative financial statements for retroactive restatements, (6) explain the rationale for clawback provisions in compensation contracts, and (7) understand the difference between the real and accrual-based earnings management. Keywords:...
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...Statement Fraud Schemes Chad Albrecht • Daniel Holland • Ricardo Malaguen˜o • Simon Dolan • Shay Tzafrir Received: 24 June 2011 / Accepted: 12 December 2013 Springer Science+Business Media Dordrecht 2014 Abstract In this paper, we investigate a large-scale financial statement fraud to better understand the process by which individuals are recruited to participate in financial statement fraud schemes. The case reveals that perpetrators often use power to recruit others to participate in fraudulent acts. To illustrate how power is used, we propose a model, based upon the classical French and Raven taxonomy of power, that explains how one individual influences another individual to participate in financial statement fraud. We also provide propositions for future research. Keywords Financial statement fraud Organizational corruption Recruitment Collusion Power and influence Introduction In recent years, fraud and other forms of unethical behavior in organizations have received significant attention in the business ethics literature (Uddin and Gillet 2002; Elias 2002; Rockness and Rockness 2005; Robison and Santore 2011), investment circles (Pujas 2003; Albrecht et al. 2011), and regulator communities (Farber 2005; Ferrell and Ferrell 2011). Scandals at Enron, WorldCom, Xerox, Quest, Tyco, HealthSouth, and other companies created a loss of confidence in the integrity of the American business (Carson 2003) and even caused the accounting profession...
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...DIAMOND BANK PLC AUDITED FINANCIAL STATEMENTS 31 DECEMBER 2011 DIAMOND BANK PLC Table of Content Page Directors' report 1 Compliance with Code of Corporate Governance 7 Directors' responsibility and approval 25 Auditors' report 26 Statement of significant accounting policies 28 Profit and loss accounts 36 Balance sheets 37 Cash flow statements 38 Notes to the financial statements 39 Statement of value added 73 Five-year financial summary 74 Financial risk analysis 78 DIAMOND BANK PLC Directors' Report For period ended 31 December 2011 The directors present their annual report on the affairs of Diamond Bank Plc (“the Bank”) and its subsidiaries ("the Group"), together with the financial statements and auditors' report for the period ended 31 December 2011. a. Legal Form The Bank was incorporated in Nigeria under the Companies and Allied Matters Act 1990 as a private limited liability company on 20 December 1990. It was granted license on the 15 March 1991 to carry on the business of commercial banking and commenced business on 21 March 1991. The Bank converted into a Public Limited Liability Company on 28 February 2005. The Bank’s shares were listed on the 27 May 2005 on the floor of the Nigerian Stock Exchange by way of introduction. b. Principal Activity and Business Review The principal activity of the Group continues to be the provision of banking and other financial services to corporate and individual customers. Such services include granting...
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...|blackboard.sc.edu | The objective of this course is deepen your understanding of the many issues faced by firms as they identify valuable investment opportunities, raise funds for those investment opportunities, distribute profits to share-holders and debt-holders and deal with the consequences of both good and bad investment financing decisions. We will expand on the concepts that you have learned in FINA 760 or in DMSB 715. Class time will be divided between lectures and case studies. My lectures will briefly review concepts from prior courses. The bulk of my lectures will present advanced material that will be new to you. It is assumed that you understand the concepts from your earlier finance and accounting courses. If not, it is your responsibility to review. In order to reduce your note-taking, my lecture notes will be available on the class web-site in PowerPoint format. I suspect that you will have difficulty paying attention for a full 2.5 hours some days. Thus, I intend to supplement live lectures with recorded lectures on a case-by-case basis. Recorded material can be viewed at your leisure when you are fresh and attentive. In addition to lectures, we will spend a significant amount of time analyzing...
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...the public accounting firm issues a written communication that express a conclusion about the liability of a written assertion of another party. * Three categories of Attestation services: a. Audit historical financial statements A form of attestation services in which the auditor issues a written report expressing an opinion about whether the financial statement are in material conformity which accounting standard. b. Review of financial statement: A type of attestation service performed by public accountants. Many entities want to provide assurance on their financial statement, without incurring the cost of an audit. c. Other attestation services Such as a natural extension of audit of historical financial statement, as users seek independent assurance about other types of information. For example: banks often require debtors to engage public accountants to provide assurance about the debtor’s compliance with certain financial covenant provision stated in the loan agreement. 2. Other assurance services, They are similar to attestation services in that public accountant must be independent and must provide assurance about information used by decision maker, but differ in that the public accountant may not be required to issue a written report. a. Assurance services on information technology b. Assurance services on other types of information 3. Non-assurance services provided by public accountants. * Accounting and bookkeeping...
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...Planning and Investment on 6 September 2002 and the following Amended BRC: Amended BRC: Date: The first amendment The second amendment The third amendment The fourth amendment The fifth amendment The sixth amendment The seventh amendment The eighth amendment The ninth amendment The tenth amendment The eleventh amendment 26 November 2002 22 September 2003 11 December 2003 3 August 2004 7 October 2004 11 May 2005 18 May 2006 6 July 2006 6 November 2007 10 October 2008 21 January 2010 KDC was listed on the Ho Chi Minh Stock Exchange in accordance with the License No. 39/UBCKGPNY issued by the State Securities Commission on 18 November 2005. The principal activities of KDC are to process agricultural products and foods; produce confectionery, purified water, and fruit juice; sell and...
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