Internal Controls

Internal Control Case on Diamond Foods, Inc.

Marchelle Kinsey

Brenau University

Week 3, September 16, 2016

Author Note

This paper was prepared for Principles of Auditing AC439, taught by Professor Bruder.

Internal controls help organizations to abate risks when they do not reach their goals, to have reliability in financial information, and to be able to improve quality information. Diamond Foods, Inc. had internal controls and procedures in place that they felt would help them to maintain control over their financial reporting and preparation of their financial statements in line with the GAAP regulations (United States Securities and Exchange Commission, 2013). Even though an organization has all the internal as well as external controls in place, there is always someone if they felt that misstating something would greatly benefit them they would do it.

Diamond Foods, Inc. “used the framework set forth in ‘Internal Control-Integrated Framework’ published by the Committee of Sponsoring Organizations of Treadway Commissions to evaluate the effectiveness of their internal control financial reporting as of July 31, 2013” (United States Securities and Exchange Commission, 2013). This evaluation did reveal material weaknesses with Diamond Foods, Inc’s internal controls. A material weakness is a lack of internal controls over financial reporting which does not allow for timely prevention in material misstatements (Whittington and Pany, 2016). These material weaknesses included complex and non-routine transactions which involved the technical accounting aptitudes and journal entries which do not have a person reviewing who neither prepared or posted them (United States Securities and Exchange Commission, 2013).

Management should consider these deficiencies to be material weaknesses because they were a direct result of “audit adjustments related to currency transaction associated with the allocation of goodwill to reporting units resulting from a change...