Diamond Foods Inc. Fraud

Case Study: Diamond underreported the cost of walnuts in two fiscal years, recording a "continuity" and "momentum" payment "in advance" to farmers who were not under contract and some of which did not supply walnuts. This was reported in the following fiscal year but made up for a dramatic rise in the cost of walnuts. These costs were misrepresented.

1. If Diamonds auditors report the fraud scheme using audit documents, does this violate the IMA Statement standard of confidentiality? Why or why not?

2. Diamonds executives directed that the cost of walnuts be materially understated on its financial statement. Explain the effect of this scheme on related IMA and AICPA standards.