1. One of the red flags identified in the case was that operating cash flow increases did not seem to match the level of increase in net income. Explain the relationship between these two measures and why it raised questions about the quality of earnings at Diamond Foods.
2. Why were the actions of Diamond Foods with respect to its ‘accounting for nuts’ unethical?
3. The role of Deloitte & Touche is unclear in the case. We do not know whether the firm identified the improper accounting for the payments to walnut growers and periods used to record these amounts. Assume that the firm identified the improper payments and discussed the matter with management (i.e., CFO and CEO). What levers might Deloitte use to convince top management to correct the materially misstated financial statements?