BUS 375-2020-Assignment Case Study 78-DiamondFoods.pdf-Managerial Marketing (BUS 375)

Diamond Foods On November 14, 2012, Diamond Foods Inc. disclosed restated financial statements tied to an accounting scandal that reduced its earnings during the first three quarters of 2012 as it took significant charges related to improper accounting for payments to walnut growers. The restatements cut Diamond’s earnings by 57 percent for FY 2011 to $29.7 million and by 46 percent for FY 2010 to $23.2 million. By December 7, 2012, Diamond’s share price had declined 54 percent for the year. A press release issued by the company explains in great detail the accounting and financial reporting issues.Diamond Foods, long-time maker of Emerald nuts, and subsequent purchaser of Pop Secret popcorn (2008) and Kettle potato chips (2010), became the focus of a SEC investigation after The Wall Street Journal raised questions about the timing and accounting of Diamond’s payments to walnut growers. The case focuses on the matching of costs and revenues. At the heart of the investigation was the question of whether Diamond senior management adjusted the accounting for the grower payments on purpose to increase profits for a given period.1. One of the red flags identified in the case was that operating cash flow increases did not seem to match the level of increase in net income. Explain the relationship between these two measures and why it raised questions about the quality of earnings at Diamond Foods.2. Why were the actions of Diamond Foods with respect to its ‘accounting for nuts’ unethical?3. The role of Deloitte & Touche is unclear in the case. We do not know whether the firm identified the improper accounting for the payments to walnut growers and periods used to record these amounts. Assume that the firm identified the improper payments and discussed the matter with management (i.e., CFO and CEO). What levers might Deloitte use to convince top management to correct the materially misstated financial statements?