Management Accounting Case Book

Diamond Foods, Inc.

Jomo Sankara and Deborah L. Lindberg, Illinois State University

THIS CASE EXAMINES A REAL-LIFE OCCURRENCE OF ALLEGED financial statement fraud by Diamond Foods, Inc. Specifically, the company purportedly understated walnut costs in order to falsify earnings to meet estimates by stock analysts. The facts of this case are drawn from Securities & Exchange Commission (SEC) accounting and auditing enforcement releases and administrative proceedings releases. Learning objectives specific to this case include increased awareness of real-life ethical dilemmas, understanding the reasons for earnings management, understanding the costs of earnings management, and greater awareness of appropriate auditing responses to potential earnings management fraud.

The case is within the grasp of introductory undergraduate students and is also appropriate for graduate students. The case can be used in either an auditing course or a managerial course. You can pick relevant questions from the case to assign to students as deemed appropriate based on the class.

Keywords: Diamond Foods, Inc., managed earnings, analyst expectations, ethics, auditors, budgetary control.

Diamond Foods, Inc.

Jomo SankaraIllinois State University

Deborah L. LindbergIllinois State University

INTRODUCTION

This case examines an interesting real-life occurrence of alleged financial statement fraud by Diamond Foods, Inc. Specifically, the company purportedly understated walnut costs in two fiscal years ...