Monsanto Accounting Problems
8-2 Case Study 4: Monsanto Company Roundup. Questions are attached along with the Rubric. Monsanto Company Roundup
Case Study Questions
- What is the underlying accounting and financial reporting concept at issues 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.
- 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, and or an audit failure? Explain.
- 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?
- 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 cost and benefits in your analysis.
EITF Issue No. 01-9 deals with the proper accounting and financial reporting of customer rebates. The underlying concept is that a company should account for rebates as a reduction of revenue and not as a selling expense. In other words, rebates should be recognized when they are earned by customers, not when they are paid.
Monsanto’s accounting for customer rebates did not comply with this concept. Instead, Monsanto accounted for rebates as a selling expense, which led to an overstatement of revenue and an understatement of expenses. As a result, the financial statements were materially misstated, and investors were misled about the company’s true financial performance.
Given that Monsanto was under great pressure from competitors that sold generic brands similar to Roundup, it can be seen as both a business failure and an audit failure. On one hand, Monsanto’s decision to improperly account for customer rebates was a business failure because it resulted in misleading financial statements that could have negatively impacted the company’s reputation and shareholder value. On the other hand, it was an audit failure because the auditors failed to identify the accounting irregularities.
The ethics and compliance requirements agreed to by Monsanto can be of value in preventing similar situations in the future. By implementing stronger internal controls, increased transparency, and greater oversight, companies can reduce the risk of financial fraud and ensure that their financial statements accurately reflect their financial position.
