Reflection C7-4

.docx

School

Marshall University *

*We aren’t endorsed by this school

Course

499

Subject

Accounting

Date

Apr 3, 2024

Type

docx

Pages

Uploaded by Doss70

Chad Doss 1 C7-4 1. Given that Monsanto was under great pressure from competitors that sold generic brands like Roundup, would you characterize the Monsanto situation as a business failure, an accounting failure, and/or an audit failure? Explain. a. The situation at Monsanto can be characterized as primarily an accounting failure, with elements of a business challenge and potential audit concerns. Here's an analysis of each aspect: i. Accounting Failure: The core issue at Monsanto was the improper accounting treatment of rebate programs. Monsanto failed to accurately record millions of dollars in rebate costs associated with its Roundup herbicide product. Instead of recognizing these costs in the appropriate reporting periods, Monsanto delayed recording them or misclassified them as selling, general, and administrative expenses. This led to material misstatements in the company's financial reports, overstating profits, and revenues. The accounting failure reflects deficiencies in internal controls, adherence to accounting standards (such as ASC 605-50), and the overall integrity of financial reporting processes. ii. Business Challenge: While the accounting failure exacerbated Monsanto's challenges, it's important to recognize the underlying business pressure the company faced. Competition from generic brands eroded Monsanto's market share and profitability, putting pressure on the company to maintain sales and market dominance. In response, Monsanto implemented rebate programs to incentivize purchases, but the mismanagement and improper accounting of these programs exacerbated the company's financial difficulties. However, the root cause of the issue lies in the failure to properly account for and report financial transactions rather than purely business strategy shortcomings. iii. Potential Audit Concerns: The case also raises questions about the effectiveness of external audit processes. While the specific details about the role of Monsanto's external auditor, Deloitte, are not extensively discussed, the whistleblower's concerns about auditor independence and objectivity warrant attention. If external auditors failed to identify or adequately address the accounting irregularities during their audits, it could indicate shortcomings in audit procedures, professional skepticism, or oversight. However, without further investigation, it's challenging to definitively categorize this as an audit failure. b. In summary, while Monsanto faced significant business challenges due to competition from generic brands, the primary issue in this case was the company's failure to accurately account for rebate programs, leading to material misstatements in financial reporting. While there may be implications for audit processes, the root cause lies in accounting and internal control failures. 2. What did Brunnquell, Nienas and Hartke do that warranted their charges by the SEC? Were they acting with the ethics expected by the profession? Explain. a. Sara M. Brunnquell: As the External Reporting Lead at Monsanto, Brunnquell was responsible for overseeing financial reporting. According to the SEC's findings,

Chad Doss 2 Brunnquell knew or should have known about the improper accounting treatment of rebate programs. She approved talking points for Monsanto's sales force to encourage retailers to participate in rebate programs, which incentivized sales but led to delayed recording of related costs. Despite her role in overseeing financial reporting, Brunnquell failed to ensure compliance with Generally Accepted Accounting Principles (GAAP) and allowed the misstatements to persist. This lack of diligence and oversight contributed to the accounting irregularities. i. Assessment of Ethics: Brunnquell's actions appear to fall short of the expected ethics of the accounting profession. As a CPA and a senior financial professional, she had a duty to ensure accurate and transparent financial reporting. Approving misleading talking points and failing to address improper accounting practices do not align with the ethical principles of integrity and professional competence expected of CPAs. b. Jonathan W. Nienas: Nienas served as the U.S. Strategic Account Lead for the Roundup Division at Monsanto. The SEC found that Nienas arranged side agreements with distributors to ensure they received maximum rebates regardless of performance, which led to improper deferral of rebate costs. By arranging these side agreements and manipulating rebate programs, Nienas contributed to the misstatement of financials. i. Assessment of Ethics: Nienas' actions demonstrate a disregard for ethical standards. As a strategic account lead, he had a responsibility to conduct business in an ethical and transparent manner. His involvement in arranging side agreements to manipulate rebate programs for personal gain is unethical and undermines the integrity of financial reporting. c. Anthony P. Hartke: Hartke held the title of U.S. Business Analyst in the Roundup Division at Monsanto. The SEC found that Hartke developed talking points for the sales force to promote rebate programs and encouraged retailers to maximize Roundup purchases to qualify for rebates. Like Brunnquell, Hartke was aware or should have been aware of the improper accounting treatment of rebate costs. i. Assessment of Ethics: Hartke's actions raise ethical concerns like Brunnquell's. As a CPA and business analyst, he had a duty to ensure accurate financial reporting and compliance with accounting standards. Developing talking points to incentivize sales without addressing the improper accounting treatment of rebate costs suggests a lack of ethical awareness or professional integrity. 3. Of what value are the ethics and compliance requirements agreed to by Monsanto? Do you believe all companies that experience financial fraud should be required to institute such changes? Can such requirements change the culture of a global company such as Monsanto? a. The ethics and compliance requirements agreed to by Monsanto hold significant value in addressing and mitigating the risk of financial fraud within the company: i. Value of Ethics and Compliance Requirements: 1. Prevention of Future Misconduct: Implementing robust ethics and compliance programs can help prevent future instances of financial fraud or misconduct by establishing clear guidelines, procedures, and controls. 2. Rebuilding Trust: By demonstrating a commitment to ethical behavior and compliance with regulatory requirements, Monsanto can work to

Chad Doss 3 rebuild trust with stakeholders, including investors, customers, and regulators, who may have been impacted by the accounting irregularities. 3. Improved Governance: Strengthening governance and oversight mechanisms can enhance transparency, accountability, and integrity in corporate operations, fostering a culture of ethical conduct throughout the organization. ii. Universal Mandate for Companies Experiencing Financial Fraud: 1. Case-by-Case Consideration: While implementing ethics and compliance requirements may be beneficial for companies experiencing financial fraud, it's essential to assess each situation on a case-by-case basis. Not all instances of financial fraud may require the same level of intervention, and the appropriate measures should be tailored to the specific circumstances and root causes of the misconduct. 2. Proportionality and Effectiveness: Mandating such requirements for all companies that experience financial fraud may not be feasible or effective. Instead, regulatory authorities should consider the severity of the misconduct, the company's history of compliance, and its willingness to cooperate in remediation efforts when determining the appropriate remedial actions. iii. Impact on Corporate Culture in Global Companies: 1. Cultural Transformation: Implementing ethics and compliance requirements can contribute to cultural transformation within global companies like Monsanto by instilling a shared commitment to ethical behavior and compliance across diverse geographic regions and business units. 2. Challenges and Opportunities: While changing the culture of a global company is undoubtedly challenging, it presents an opportunity for leadership to reinforce core values, promote transparency, and foster a culture of integrity through consistent communication, training, and accountability mechanisms. 3. Long-Term Sustainability: By embedding ethics and compliance into the fabric of corporate culture, companies like Monsanto can enhance their long-term sustainability and resilience, mitigating the risk of future misconduct and maintaining stakeholder trust and confidence. b. In conclusion, the ethics and compliance requirements agreed to by Monsanto hold considerable value in addressing financial fraud, rebuilding trust, and promoting ethical conduct. While not universally mandated, such requirements should be carefully considered on a case-by-case basis, and their implementation can contribute to cultural transformation and long-term sustainability in global companies. 4. Did it appear that Monsanto had an adequate internal whistleblowing mechanism in place? Explain. a. It does not appear that Monsanto had an adequate internal whistleblowing mechanism in place:

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version