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Volume 7 Issue 4

IMA Educational Case Journal
ISSN 1940-204X

Articles

Jomo Sankara, Illinois State University
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 can be used for either managerial classes or auditing classes.
Keywords: Diamond Foods, Inc., managed earnings, analyst expectations, ethics, auditors, budgetary control
Regina Anctil, University of St. Thomas
Michael Borneman, Connolly, Inc.
Theodore Long, 3M Company
THIS CASE FOLLOWS A WHOLESALE GROCERY DISTRIBUTOR PLANNING to develop newly acquired property into a large retail store. The wholesaler will build and finance the store for a given operator/buyer. At the time of the case, the buyer has not been identified nor has the type of retail grocery store been determined. Company management concurs that the site should either be developed into a conventional supermarket or a warehouse supermarket. The format determination will narrow the choice of potential buyers to either conventional store operators or warehouse store operators. Company management is under pressure to honor existing customer relationships and pursue a local warehouse store operator within their current customer base. But strategic considerations also motivate the company to pursue an external buyer of strategic importance. That potential buyer operates conventional stores. A comparison of the potential competitiveness of the conventional vs. warehouse formats for the site could greatly influence the pursuit of a specific buyer.
Internal analysts are given the task of projecting and analyzing master budgets, including income statements and balance sheets, to help assess which type of operation would be stronger in this site. Analysts have access to a data workbook containing sales forecasts under the two formats for the site and historical financial statements from comparable conventional and warehouse stores in the region. Analysts are required to decide how information should be incorporated into their budgets and justify their work to decision makers.
Keywords: budgeting, budget analysis, merchandising industry