BACKGROUND
Shortly after the Civil War Abraham Anderson and Joseph Campbell began manufacturing canned vegetables and fruit preserves. However, in 1876, Campbell bought out Anderson’s interest and renamed the firm the Joseph Campbell Preserving Company. Later, Arthur Dorrance became Campbell’s new partner. By the early 1920s, John Dorrance, Arthur Dorrance’s nephew, was the sole owner of the Campbell Soup Company, which was the largest producer of canned soup products. Unfortunately, with the twentieth century vastly approaching the nation’s appetite for condensed soup products deteriorated.
This weakening demand caused the company’s executives to use an assortment of questionable business practices and accounting schemes to enhance the company’s reported earnings. The alleged scams included trade loading, improper accounting for loading discounts, shipping to the yard, and guaranteed sales. In this case, these four main scams represent how Campbell Soup used improper business practices to manipulate its periodic income statements.
Pricewaterhouse Coopers (PWC) was the auditor’s for Campbell soup. Campbell offered sizable trade discounts near the end of accounting period to entice customers to make product purchases that they would otherwise defer. By doing so, Campbell Soup not only used price concessions to prop up its reported revenues and profits but they also manipulated the reports on their periodic income statement. During the audit PwC also learned that Campbell recorded some trade discounts as Selling General and Administrative expenses (SG&A) instead of reduction to Gross revenues. However, Campbell officials guaranteed that in the future proper recording of key amounts would be reported in its statement. Campbell also recorded all customer sales on an FOB shipping point basis. In fact, the actual shipping terms for many of Campbell sales were FOB