Diamond Foods Accounting Scandal Essay example

3139 Words May 24th, 2016 13 Pages
CRAM Exclusive
Essay Sample
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®

middle of document…

The SEC accused Neil of disguising a portion of the walnut costs as an advance on future crop deliveries, as well as misleading auditors by providing false information and omitting facts to justify his usual accounting practice (SEC, 2014). The SEC also charged Diamond’s Chief Executive Officer (CEO) Michael Mendes with negligence for his role in certifying the inaccurate financial statements. The litigation claimed the CEO omitted facts to external auditors and should have recognized the inflated walnut costs on the statements. Diamond replaced both Mendes and Neil in 2012, and the company agreed to pay a $5 million settlement.

The case of fraudulent accounting for Diamond Foods can be seen to have two drivers. One is the pressure the executives faced to not only meet, but also exceed the earnings estimates of the Wall Street stock analysts and second to continue to keep the longstanding positive relationships with walnut growers as the price of the raw goods increase, according to the SEC Case. The two issues are interconnected, as the company would not be able to report high earnings and growth as the cost of one of its largest pieces of inventory, walnuts, continue to increase. As the price of walnuts raised, the CFO, Steven Neil, developed a scheme to keep the costs down and show increased earnings to meet the pressure set forth by the Wall Street analysts. This was done through a
CRAM Exclusive

Related Documents

  • Diamond Foods Fraud Essay

    Prior to joining Diamond, he served in various companies in financial and information systems capacities. Neil holds an M.B.A. degree from UCLA, a bachelor’s degree in mathematics from UCSB and is a Certified Public Accountant in the state of California. Neil appears to have a lot less knowledge and experience regarding the intricacies of Diamonds operations, but has significant knowledge and experience with financial statement operations and reporting. The Nut of the Problem Before

    Words: 2086 - Pages: 9
  • Essay on Worldcom Accounting Scandal

    We know that reserves created for one expense cannot be used to offset another expense, as this is in violation of accounting principles. The rationale given for making this entry was that DiCicco would eventually find $150 million in savings from disputed billings to WorldCom. It is clear that this is in clear violation of GAAP. 3. In the White Paper presented to the Board of Directors, the CEO Scott Sullivan supported the decision to capitalize line costs. The rationale provided was that this

    Words: 1241 - Pages: 5
  • Essay about Enron Accounting Scandal

    financial statements which covered up the loans as cash flow, using their “independent SPEs” to gain Enron’s losses on paper and “create” profits. Another tactic that Enron used was by forecasting the futures market of energy sales (Kay, 2). The accounting frauds were discovered starting when Enron told investors they were restating earnings for the past 4 and ¾ years in November 2001 (Hale, 5). Declaring bankruptcy shortly after restating its earnings was also a clue. If that was not enough, the

    Words: 1700 - Pages: 7
  • Adelphia Communications Scandal Essay example

    self-dealings in bid to avoid raising Wall Street’s and shareholders suspicions. They fraudulently increased Adelphia’s routine operational expenses to cover for the funds wrongfully acquired. As the scandal intensified, John Rigas resigned from Adelphia alongside his three sons, Tim, Michael and James. The scandal escalated until John Rigas and one of his sons, Timothy, were arrest and prosecution of fraud. The court found them guilty. Ethical issues arising from the incident Several ethical issues emerge

    Words: 1566 - Pages: 7
  • Enron Scandal: Who Did What? Essay example

    Causey was the former executive vice president and chief accounting officer (BBC, 2002, p. 1) The lists of charges against these four men were tremendous. According to the Biography channel website (2013), “Fastow was indicted on 78 counts of fraud, money laundering, and conspiracy” (p. 1). Lay was indicted on six counts of fraud and conspiracy (Pasha, 2006, p. 1). According to Pasha (2006), Skilling was pressed with 28 charges of insider trading, fraud, and conspiracy (p. 1). In the SEC filings

    Words: 2952 - Pages: 12
  • Population And Food Essay examples

    ability to produce food and our ability to produce children.¡¨(Malthus 80) He said human beings are far better at making babies than are at finding food for survival. This problem, exists in all past and present societies, and must also exist in any future society as well. Therefore Malthus and Paul both agreed that the population could not increase without an increase of food. Without an excessive population, the world¡¦s fertile land can produce enough food, or even excess food. There will be a sufficient

    Words: 2395 - Pages: 10
  • Financial Accounting: Essay example

    Similarities On the other hand, there are some similar statements between comprehensive income and financial position. For example, they are need prapare a comprehensive income for the end of years. In the process of financial record, revenue, cost of sales and gross profit are must be caculate both of them. It is illustrates the income situation of company. The usual expenses are calculated such as salaries, rent and rates, insurance. Whole of table of comprehensive income and financial position

    Words: 997 - Pages: 4
  • Accounting Essay example

    Payroll Another source of financial transactions is the company's payroll. While many companies process payroll on their accounting software, others opt to outsource payroll to companies such as ADP, Paychex, Intuit, or local firms. (AccountingCoach is not affiliated with any of these companies and it does not receive affiliate marketing commissions from any of them.) To learn more about payroll use any of the following links: * Explanation * Quiz * Questions and Answers (Q&A)

    Words: 719 - Pages: 3
  • Accounting and Management Essay examples

    When the break even point in dollars is desired, contribution margin ratio is used in the following formula Fixed Costs ÷ Contribution Margin Ratio = Break-even Point in Dollars BREAK-EVEN ANALYSIS Contribution Margin Technique Example using Vargo Video data: Contribution Margin per Unit $200 Break-even Point in Units 1,000 units Fixed Costs $200,000 ÷ = Fixed Costs $200,000 ÷ Contribution Margin Ratio 40% = Break-even Point in Dollars $500,000 BREAK-EVEN

    Words: 2105 - Pages: 9
  • Whole Foods Essay examples

    Such issues are critical for Whole Foods because of their fresh meat and poultry produce. Economic Segment The economic segment is relevant because Whole Foods products are priced higher than its competitors. In an event of an economic downturn, this may affect Whole Foods products unfavorably if consumers decide to switch to competitors which offer organic food at lower prices (eg. Traders’ Joe). The economy is also relevant because Whole Foods specifically targets at the affluent group. The

    Words: 2809 - Pages: 12