1. What is the underlying accounting and financial reporting concept at issue as described in EITF Issue No. 01-9 with respect to the way Monsanto accounted for customer rebates? Explain in your own words how Monsanto’s accounting led to materially misstated financial statements.
2. Given that Monsanto was under great pressure from competitors that sold generic brands similar to Roundup, would you characterize the Monsanto situation as a business failure, an accounting failure, and/or an audit failure? Explain.
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?
4. Do you believe restated financial statements should be audited by a different firm than the one that prepared the original financials? Why or why not? Consider costs and benefits in your analysis.

Monsanto is an agricultural seed and chemical company that manufactures and sells glyphosate, an herbicide, under the trade name “Roundup.” Roundup historically was one of Monsanto’s most profitable products, and the company sells it to both retailers and distributors. After the patent expired in 2000, competition from generic products began to erode Monsanto’s profit margins. By fiscal year 2009, generic competitors were undercutting Monsanto’s prices in the U.S. and Canada by more than 70 percent. Monsanto was losing share in these markets as customers – concerned they could not profitably sell high-priced Roundup – shifted their purchases to generic brands. By the end of fiscal 2009, Monsanto had lost more than half of its share of the glyphosate market (dropping from 55 percent market share to less than 25 percent).

During fiscal years ended August 31 of 2009, 2010, and 2011, Monsanto improperly accounted for millions of dollars of rebates offered to Roundup distributors and retailers in the U.S. and Canada to incentivize them to purchase Roundup. Monsanto also improperly accounted for rebate payments to Roundup customers in Canada, France, and Germany as selling, general, and administrative expenses (“SG&A”) rather than rebates, which boosted Roundup gross profit in those countries. Monsanto did not have sufficient internal accounting controls to identify and properly account for rebate payments promised to customers.

As a result, Monsanto materially misstated its consolidated earnings and its revenues and earnings for its Roundup business lines in its periodic reports filed with the SEC for fiscal years 2009, 2010, and 2011. As a result of the improper accounting, Monsanto met consensus earnings-per-share analyst estimates for fiscal year 2009.

On November 14, 2011, Monsanto restated its 2009 and 2010 annual reports on Form 10-K and its 2011 quarterly reports on Form 10-Q (collectively “the Restatement”).

As a result of the action of Monsanto and top managers, the company violated reporting provisions of Securities and Exchange Acts, the books and records provisions, and the internal accounting control provisions of Exchange Act Section 13(b)(2)(B).

Monsanto agreed to pay an $80 million penalty and retain an independent consultant to settle charges that it violated accounting rules and misstated company earnings as it pertained to its flagship product Roundup. Three accounting and sales executives also agreed to pay penalties to settle charges against them.

Cast of Characters

Sara M. Brunnquell was the External Reporting Lead at Monsanto from April 2009 through October 2015. In that capacity, she reported to the Controller of Monsanto. Brunnquell was a CPA during the time of the accounting fraud.

Jonathan W. Nienas was the U.S. Strategic Account Lead for the Roundup Division from September 1, 2009 until he retired in January 2014.

Anthony P. Hartke held the title of U.S. Business Analyst in the Roundup Division from July 2008 to August 2010. He was a CPA during the time of the accounting fraud.