Examples of how the firm can morally improve net income.

Using available alternatives to report financial accounts to your advantage to either enhance or decrease revenue or profit is considered to be an ethical technique to manage earnings.

Diamond Foods employed a number of unethical strategies to reduce the cost of goods and boost net profit. They made this decision in order to achieve the stock analyst's prediction and perhaps the stock base pay or bonus for top management. By making a variety of delayed payments, including momentum payments, continuity payments, and final payments, they are incorrectly reflecting the purchase price of walnut in their financial accounts. These payments are unethical methods of concealing the true cost of walnut and delaying the gap price till the following year. These methods go against generally accepted accounting principles.

Two specific examples of how a company could ethically improve net income are:

• Increasing a company's net income ethically requires using tactics that are not only profitable for the business in question but also adhere to certain moral guidelines. For instance, reducing expenses is an ethical strategy to increase net income since it does not entail falsifying financial statements or participating in tactics that are intended to mislead. Growing revenue is another method through which businesses may boost their net income. This may be accomplished in a morally responsible manner by promoting items or services honestly and openly.
• The use of new technology, the streamlining of existing processes, and the elimination of waste are three more ways for businesses to boost their operational efficiency. In addition, businesses have the potential to boost their net income by making use of the various tax credits and deductions that are now available. This may be accomplished in a morally responsible manner by operating within the confines of the law and providing precise documentation of any credits or deductions.

Reasons for the finance team to continue with the schemes.

There could be several possible reasons why accounting personnel "went along" with the schemes to understate the cost of walnuts in both fiscal year 2010 and fiscal year 2011, including:

• Pressure from management to meet financial targets and maintain the company's stock price.
• Fear of losing their jobs if they spoke out against the accounting irregularities.
• Lack of understanding of the full impact of the accounting manipulations on the financial statements.
• Belief that the accounting manipulations were within acceptable ethical and accounting standards or necessary to remain competitive.
• It was in the financial team's best interest to artificially inflate the stock price by raising net income to exceed stock analyst predictions because the stock price determines the CEO and CFO's bonus and compensation.
• The timing of this entire earning management process was quite important. A merger and purchase of the main potato chip business unit is now taking place. In order to get the greatest profit, they sought to keep the stock price high.

The alternative plan of action

• The finance team could properly record the continuity and momentum payments as part of the cost of walnuts, advise their superiors of the actual cost of walnuts, and disclose the actual results of the company's finances. Generally Accepted Accounting Principles (GAAP), which are the most authoritative rules for financial accounting, would have required this to be done in a manner that was compliant with its requirements.
• In addition, the finance team had the option of voicing their concerns to the external auditors and requesting that the auditors take the appropriate actions to guarantee that the financial statements were truthful. This would have been by codes of professional conduct such as the Declaration of Ethical Professional Practice published by the Institute of Management Accountants (IMA) and the Code of Professional Conduct published by the American Institute of Certified Public Accountants (AICPA).

Status of the charges

and the reason for settling and disputing the charges by Micheal Mendes and Neil respectively.

• According to SEC's final judgment date on February 6, 2015, "Without admitting or denying the SEC's allegations, Neil consented to the entry of final judgment, which the court entered on February 2, 2015. The final judgment orders Neil to pay $125,000 in civil monetary penalties" bars him from serving as an officer or director of a public company for five years. As part of the settlement, Neil also agreed to forfeit a legal claim against Diamond related to shares of stock and stock options that the company awarded him in part during the time of the fraudulent financial reporting" (U.S. SECURITIES AND EXCHANGE COMMISSION, 2015)

• In my opinion, Because of the probable repercussions of a drawn-out court struggle, Michael Mendes most likely decided to settle the allegations brought against him with the SEC. It is possible that Mendes concluded that it was to his best advantage to accepting the settlement offer made by the SEC to avoid incurring any more litigation expenditures and to safeguard his image.
• On the other side, Neil is most likely contesting the allegations because he feels that the SEC does not have sufficient evidence or that he did not engage in any illegal activity. Neil might be contesting the allegations not just because he thinks he has a strong defense but also because he wants the matter to go to trial in the hopes that the judge will find it in his favor.

References

U.S. SECURITIES AND EXCHANGE COMMISSION. (2015, February 6). Steven Neil (release no. LR-23192; February 6, 2015). SEC.gov. Retrieved March 1, 2023, from https://www.sec.gov/litigation/litreleases/2015/lr23192.htm

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