Diamond Foods, Inc. Restates 2011 Statements

DIAMOND FOODS, INC. RESTATES 2011 STATEMENTS

Kimberly Buck

Strayer University

Professor Ralph A. Stanley

ACC499 – Undergraduate Accounting Capstone

February 3, 2013

DIAMOND FOODS, INC. RESTATES 2011 STATEMENTS

On November 12, 2012, primarily due to the accounting of Momentum and Continuity crop payments to walnut growers, Diamond Food, Inc. restated their financial statements for fiscal year ending July 31, 2011 (Annual Reports: Diamond Foods, 2012). After an internal investigation by the Audit Committee, it was determined that the crop payments were for the prior year and thus were not recorded in the correct accounting period. The quarterly cost estimates related to these payments were also found to have insufficient support. Included in the restatement were corrections for accounts payable and accrued liabilities that were previously recorded in the wrong period and miscellaneous adjustments that had been deemed immaterial.

The impact of the restatement of the fiscal year 2011 financial statements was substantial to the earnings per share values (Annual Reports: Diamond Foods, 2012). The basic earnings per share went from $2.28 to $1.21 for a decrease of $1.07 per share. An effect of cost expenses not being recorded correctly in Accounts Payable and Accrued Liabilities led to a decrease in net income of $3.5 million. The restatement also had an impact on the price of shares. Directly following the release of the report, shares fell more than 17 percent (Geller, 2012).

Management has a responsibility to investors and shareholders to ensure the financial statements are as accurate as possible. Investors need to have reliable financial statements to be able to make investment decisions. One way to achieve accurate financial statements is through internal controls. Management is responsible for developing internal controls and testing those controls to ensure they are adequate. When a restatement is necessary, management has a responsibility...