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Requirement 1 (a) Explain briefly the technique(s) used by Diamond's senior management to manipulate the Company's earnings in fiscal 2010 and 2011. (b) Explain whether

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Requirement 1 (a) Explain briefly the technique(s) used by Diamond's senior management to manipulate the Company's earnings in fiscal 2010 and 2011. (b) Explain whether Diamond's accounting of the August 2010 "continuity" payments and August/September 201 1 "momentum" payments complied with the Generally Accepted Accounting Principles (GAAP) in the U.S. Cite related pronouncement(s). (c) Was Diamond's accounting in compliance with the International Financial Reporting Standards (IPRS)? Explain. Requirement 2 Diamond's Audit Committee concluded that a "continuity" payment made to growers in August 2010 of $20 million and a "momentum" payment made to growers in August/September 2011 of $60 million were not accounted for in the correct periods. (a) Assume that a junior auditor of Deloitte's audit team has proposed that given the size of "the total liabilities and stockholders' equity" of Diamond of $1.226 billion, an adjustment of $20 million of grower payables is immaterial (1.63 percent) for fiscal 2010. Would you agree with the junior auditor? Why? (Note: Assume that Diamond sold all walnuts purchased during the fiscal year in that year.] (b) How would you determine whether the effect of recording the $20 million "continuity" payments and $60 million "momentum" payments in incorrect accounting periods was material on Diamond's financial statements for fiscal 20//? Explain and provide an appropriate explanation and supporting calculations, if any. Requirement 3 (a) Why is it important for an auditor to understand a client's business environment? (b) Provide some examples of Diamond's business risks contributing to the financial reporting and audit risks that Deloitte had to consider in performing the audit for fiscal 201 1. (c) What audit procedures could Deloitte have performed to help it detect the fraud by Diamond's management

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