D and Case Study Assignment - Mattel. X por Mattel PWC Case.pdf X + X C O File | C:/Users/Chancelle/Downloads/Mattel%20PWC%20Case.pdf Q of 28 Q + O This file has limited permissions. You may not have access to some features. View permissions X MARSHAL HERRMANN JULIA KELLEY Financial Reporting at Mattel In September 2020, Diana Ferguson, the newly appointed Audit Committee chair of Mattel, Inc.'s board of directors, was nearing her first committee meeting. Mattel had hired Ferguson, the chief financial officer of venture capital firm Cleveland Avenue LLC, to join its board two months earlier.' She had arrived at a pivotal time for Mattel. Mattel was a toy and game manufacturer that had recently endured several tough years of declining revenue. Consumer demand for traditional toys and games had waned, so retailers purchased less inventory from Mattel and other manufacturers. O In 2018, Mattel's problems worsened. Its Tax team discovered a significant reporting error in its third-quarter financial results. After consulting with its external auditor, PricewaterhouseCoopers + (PwC), Mattel's finance team opted not to issue a correction. They instead retroactively changed its reporting process the following quarter, effectively concealing the mistake. In 2019, an anonymous whistleblower reported the incident, setting off a chain of negative press coverage and senior-level resignations. The whistleblower letter triggered an internal investigation into Mattel's accounting procedures.2 In October 2019, Mattel announced that while there were shortcomings in its reporting procedures, the actions it took did not amount to fraud. However, in early 2020, the U.S. Securities and Exchange Commission (SEC) launched a fresh investigation into the accounting error and subsequent cover-up. In light of these events, Ferguson faced a challenging road ahead as the new Audit Committee chair. There were several important issues for the Committee to consider. Its members would have to review the decision to retain PWC as Mattel's auditor for 2021. Mattel's scandal was just one of several recent accounting issues involving PWC that had raised questions about the audit firm's independence and objectivity.56 However, Mattel had a long history with PWC. Moreover, PWC had since removed Joshua Abrahams, who was the lead audit partner in charge of Mattel's audit, and had publicly stated its commitment to independence. More importantly, the accounting scandal had revealed the company's poor internal controls and board oversight over financial reporting. The Committee needed to tackle its corporate governance issues and find ways to restore investor confidence in Mattel's financial disclosures. OL O 12:21 PM 10/18/2022and Case Study Assignment - Mattel. X por Mattel PWC Case.pdf X + X C File | C:/Users/Chancelle/Downloads/Mattel%20PWC%20Case.pdf 3 of 28 Q + K7 Co3 O This file has limited permissions. You may not have access to some features. View permissions X president and CEO of Quality Food and held multiple executive roles at Pepsi-Cola. Under Sinclair, Mattel attempted a turnaround effort. The company successfully reversed sales declines for the Barbie and Fisher-Price brands, launched an entrepreneurial business called Toy Box, and developed new marketing campaigns and product displays. Nonetheless, revenue continued to decline, and weak holiday sales in 2016 led to a tough start to 2017. In January 2017, Mattel announced that Margaret "Margo" Georgiadis would become its CEO. She had spent the past six years as the president of Google's Americas business, spurring hopes that she would be able to help Mattel succeed in an increasingly digital world." After studying economics at Harvard College and earning an MBA from Harvard Business School, Georgiadis had spent 15 years O as a Mckinsey & Co. partner before becoming Discover Financial Services' chief marketing officer and Groupon Inc.'s chief operating officer.32 Analysts expressed tentative optimism at the news. The + turnaround was in its early days, wrote Wells Fargo analysts in April, but "Georgiadis' skill set (data driven business/consumer analytics, strategy, new product introduction velocity, and sales) should complement the existing team [. . .]."33 In October 2017, Mattel hired Joseph Euteneuer as its chief financial officer, replacing Kevin Farr, who had spent more than 25 years at Mattel after a decade at PWC.34 With an MBA from Duke University's Fuqua School of Business, Euteneuer had previously served as the CFO at cellular network company Sprint Corporation, telecommunications company Qwest Communications, radio broadcasting company XM Satellite Radio, and Internet and cable company Comcast Corporation.35 Euteneuer reported to the CEO and oversaw Mattel's financial reporting teams, including the Tax department. He also coordinated regularly with the PWC team assigned to work with Mattel. (See Exhibit 3 for a summary of key relationships in the reporting process.) Despite such leadership changes, Mattel remained on shaky ground. An analyst suggested that Mattel would have to "become more nimble, innovating faster while still focusing on operational excellence in order to restore net income growth."36 Another report pondered whether to view Mattel's glass as "half full or half empty," noting, "For us to view that glass as half full, Mattel needs to deliver upon its guidance flawlessly for the remainder of the year [. . .]."37 OLDO O 12:26 PM 10/18/2022 1