Monsanto Rounds Up $80 Million in Accounting Violations

ST. LOUIS (FEBRUARY 9, 2016)

BY MICHAEL COHN, Accounting today

The Securities and Exchange Commission said Tuesday that St. Louis-based agribusiness Monsanto Company has agreed to pay an $80 million penalty ….. to settle charges that it violated accounting rules and misstated company earnings pertaining to its flagship product Roundup.

An SEC investigation found Monsanto had insufficient internal accounting controls to properly account for millions of dollars in rebates offered to retailers and distributors of its herbicide Roundup after generic competition had undercut Monsanto’s prices and resulted in a significant loss of market share for Roundup. Monsanto booked substantial amounts of revenue resulting from sales incentivized by the rebate programs, but failed to recognize all of the related program costs at the same time. Therefore, Monsanto materially misstated its consolidated earnings in corporate filings during a three-year period….

The agribusiness giant has attracted controversy over the years for pressuring farms to buy its Roundup-resistant seeds every year and suing them if they re-use the seeds. The company has even sued farms where Roundup-resistant crops were found to be growing because the genetically modified seeds had blown over from neighboring farms. Monsanto has also faced lawsuits of its own for hiding the carcinogenic effects of a key ingredient in Roundup. Accounting violations are a relatively new area for Monsanto, however…

According to the SEC’s order instituting a settled administrative proceeding against Monsanto, accounting executives … and sales executives…began telling U.S. retailers in 2009 that if they “maximized” their Roundup purchases in the fourth quarter they could participate in a new rebate program in 2010. Executives developed talking points for Monsanto’s sales force to use when encouraging retailers to take advantage of the new rebate program and purchase significant amounts of Roundup in the fourth quarter of the company’s 2009 fiscal year….Approximately one-third of Monsanto’s U.S. sales of Roundup for the year occurred during that quarter.

The SEC contended that … U.S. GAAP required the company to record in 2009 a portion of Monsanto’s costs related to the rebate program, but Monsanto improperly delayed recording these costs until 2010.

Monsanto also offered rebates to distributors who met agreed-upon volume targets. However, late in the fiscal year, Monsanto reversed approximately $57.3 million of rebate costs that had been accrued under these agreements because certain distributors did not achieve their volume targets (at the urging of Monsanto). Monsanto then created a new rebate program to allow distributors to “earn back” the rebates they failed to attain in 2009 by meeting new targets in 2010. Under this new program, Monsanto paid $44.5 million in rebates to its two largest distributors as part of side agreements arranged by management, in which they were promised late in fiscal year 2009 that they would be paid the maximum rebate amounts regardless of target performance. Because the side agreements were reached in 2009, Monsanto was required under GAAP to record these rebates in 2009. But the company improperly deferred recording the rebate costs until 2010.

Monsanto repeated the program the following year and improperly accounted for $48 million in rebate costs in 2011 that should have been recorded in 2010, according to the SEC. Monsanto also improperly accounted for more than $56 million in rebates in 2010 and 2011 in Canada, France and Germany. They were booked as selling, general and administrative expenses rather than rebates, which boosted gross profits from Roundup in those countries…..

Monsanto said it cooperated with the SEC settlement…” (It) neither admitted nor denied the SEC’s allegations. Today’s announced settlement does not require any changes to the company’s historical financial statements due to our proactive efforts to restate our financials for the period at the center of the SEC’s investigation.”

She pointed out that that the $80 million civil penalty was fully reserved for and previously disclosed in the company’s financial statements for fiscal year 2015.

Miller also objected to how Monsanto has been characterized. “We do not pressure farmers into buying our products. Farmers have lots of choices and we must earn their business every year….. Additionally, Monsanto has never sued a farmer when trace amounts of our patented seeds or traits were present in the farmer’s field as an accident or as a result of inadvertent means. …

Despite lawsuits against Monsanto over its ingredients, Miller contended that glyphosate (a key ingredient in Roundup) does not cause cancer. “Glyphosate is a vital tool for agriculture with a more than 40-year history of safe use,” she said. “Glyphosate has been the subject of hundreds of detailed health and safety studies – making it one of the most thoroughly studied herbicides on the market….”

…(Executives) agreed to pay penalties of $55,000, $50,000 and $30,000 respectively, and agreed to be suspended from appearing and practicing before the SEC as an accountant (for a period of time)….

The SEC’s investigation found no personal misconduct by Monsanto CEO …who reimbursed the company $3,165,852 and $728,843, respectively, for cash bonuses and certain stock awards they received during the period when the company committed accounting violations. Therefore, it wasn’t necessary for the SEC to pursue a clawback action under Section 304 of the Sarbanes-Oxley Act.

1)     Audit theory says that the risk of material misstatement is a component of inherent risk and control risk. Assume you are the auditor for Monsanto for 2009. Discuss ways in which the auditors could have been become aware of inherent risks of material misstatement during the planning stage. Identify key inherent risks as evidenced in the reading.

2)     What accounts (based on what is described in the narrative) are over or understated? Where do the accounts fit within the scope of these accounting elements – current assets, long-term assets, current liabilities, long-term liabilities, contributed capital, accumulated other comprehensive income and retained earnings?   Indicate the account, its position in the elements, whether or not it is over or understated, and discuss the specific financial statement assertion violated.

3)     Discuss what happened in terms of the fraud triangle.

4)     What do you think about the PCAOB’s role in this matter?

In many workplaces ranging from Fortune 500 to small enterprises, workplace communication takes place over instant messaging. The leading platform in this space is Slack, a cloud-based team collaboration tool. Messages are organized by private and public channels and users can chat, share documents, browse through past messages, and collaborate with each other. Slack is solidifying the role of instant messages in the workplace and even if you end up in a company that does not use Slack, it is likely that you will end up using one of its competitors.

Slack has an interesting founding story: Stewart Butterfield, who is also a co-founder of the image hosting service Flickr, founded the video game company Tiny Speck and released the game Glitch in 2011. As part of their game development process, the company also built a team communication platform, allowing software developers to communicate with each other while building Glitch. Glitch was shut down after a year, but the company devoted itself to the full-scale development of their communication tool, which resulted in Slack. Through word of mouth, Slack acquired 16,000 users in its beta stage, and the product was fully released in 2014. Four years later, the company boasts 50,000 companies and 6 million users. The company expects to surpass e-mail use in the workplace by 2025.

Using instant messaging organized by private and public channels is changing how people communicate in the workplace, sometimes for the better, and sometimes for the worse. On the upside, Slack often receives feedback from users who identify as shy and introverted, stating that this tool allows them to participate more in team conversations. Anna Pickard, Creative Director of Voice and Tone, at Slack, also observes that messaging makes communication more humane and natural. Communication no longer takes place between small groups of people over e-mail. Instead, it occurs in channels that are searchable and are organized by team or topic. People can reach out to and connect with people they would not otherwise. Many companies have an "ask me anything" channel where employees may post messages and high-level managers may answer, resulting in greater transparency and accessibility to upper management, helping to create a sense of belonging.

At the same time, technology sometimes amplifies communication problems that also occur in person, and creates new ones of its own. If you have ever written a chat message and instantly regretted it, you can imagine the problems that may occur at scale in the workplace. The instantaneous nature of chat can make people less deliberate and careful about their messages. There are also examples of private feedback given in an open channel, resulting in a public shaming of an employee. Slack conversations, even if they are in private channels, can be read by the employer, and may result in adverse employment actions against the employee. There is no "forward" button on instant messages, but it is all too easy to take a screen shot of the conversation and share with others, resulting in Slack leaks, similar to e-mail leaks. Additionally, there is also user error—in e-mail it is relatively easy to find out who the recipients of the e-mail are, but on Slack, people may pay less attention to who is on that channel, and others may join the channel at a later point, suggesting that the audience for the posts will evolve and can grow over time. People may confuse which channel they are on, and post messages intended for a small group to a broad audience.

As Slack grows, it develops its own etiquette. For example, hitting "enter" after every sentence is often mentioned as a no-no, and a pet peeve of heavy users. Senders are expected to complete their message and then hit enter in one go. Other habits may result in productivity losses—spending time in private chats as opposed to working is one way in which Slack and tools like it may result in productivity losses. One company banned the use of Slack during meetings, as people were having back-channel conversations during the meeting, which was distracting and affecting engagement in the meeting. How these tools are used are shaped by the office culture, and in turn will have an impact on communication culture in the workplace.

1. If you were to create a social media policy including Slack, what types of rules would you include and why?  

2. What types of messages do you believe are appropriate to communicate via Slack? For what type of communication is this tool less useful?

3. What type of communication barriers exist when workplace communication takes place over Slack and similar sources?

4. What are the implications of Slack and similar communication tools in affecting the sense of belonging that employees experience in the workplace?

5. Based on reading this case and your general experience with similar tools, what advice would you give to an employee who will start working in a company using Slack?

1. Include the bold headings below.
2. Summary: Provide a brief summary listing the key facts in the case.
3. Case Discussion Questions: Include each question before your response. Write a detailed and researched reply to each of the Case Discussion Questions found at the end of the case study.
4. Conclusion: Write a conclusion and include a separate reference page.

Can anyone help on this?.Thanks.

Jade MacIntire is a famous singer. Jade Aquarium, Inc. isa multimedia company with business interests in music, videos, and video games. Both Jade MacIntire and Jade Aquarium need help booking the licensing agreements they have entered into during the past year. They entered into the following licensing agreements: 1) In January, Jade Aquarium, Inc.purchased the intellectual property rights to the music created by Jade MacIntire to date of the contract, for $20,000. Under the terms of the contract has additionally acquired the right to purchase future compositions created and sung by the artist, for $500 per composition, within five-years from the date of the contract. The corporation can legally sell to another party the compositions it has purchased from the artist. 2) This year, Jade MacIntire has entered into an agreement with the producers of a Broadway musical, giving them the exclusive right to use a song that she wrote,for a $10,000 consideration. It is not a song Jade MacIntire willever personally perform. 3) Jade Aquarium, Inc. has also entered into a licensing agreement with a movie company allowing it to use two of the artist’s most popular compositions in future movies over the next two years. The movie company paid $2,000 for the option to use the songs and will pay an additional $1,500 each time the songs are used in a movie. It is expected that the use of the songs in the movies willbolster the artist’s popularity, increasing the demand for her albums. 4) Jade Aquarium, Inc. also collects royalties for songs written by Jade MacIntire and played on air. On average the company collects for 3500 song plays each month. Each play earns the company 9.1 cents in royalties. 5) Jade Aquarium produced a guitar music app that individuals can download for $2.99, with20,000 apps downloaded this year. The app is fully functional, but the company anticipates needing to provide software updates twice a year for the next five year; these costs are expected to equal $3,000 and are considered immaterial to the total app developmental cost of $60,000. 6) At the end of June, Jade MacIntire sold the rights to the use of her album cover images for t-shirts and mugs to Music Outfitters-R-Us for two years. Music Outfitters-R-Us paid Jade MacIntire $20,000 for the rights. Music Outfitters-R-Us has offered Jade a bonus of $10,000 if Jade MacIntire averages at least 50 shows per year over the next two years and $5,000 if Jade MacIntire averages at least 40 shows per year over the next two years. By the end of the year, Jade MacIntire had performed 50 shows. The probability of Jade MacIntire playing 20-29 shows next year is 15%, 30-39 shows next year is 25%, 40-49 shows next year is 30%, 50+ shows next year is 30%. Case Questions 1) Summarize the issues specifically related to accounting that are in this case. 2) Providing relevant support from the FASB Codification, discuss the proper accounting treatment for the revenue generating activities. More specifically, at what point(s) in time should revenue be recognized, and for what amount(s)? 3) Find, cite, and summarize the relevant international accounting standard applicable to this case. Compare and contrast relevant U.S. GAAP and IFRS standards.

After having initially started out in 1988 as a reseller of third party software to small distribution businesses and corporate systems for retail home offices, by 1993 Datavantage grew to 16 employees and $1.5 million in sales with only $50,000 of external financing. Very few products were developed internally and, by 1993, Datavantage was slowly transforming itself into a consulting company. Despite relative success, it wasn’t exactly what Marvin envisioned to be an exciting entrepreneurial opportunity and he was ready to get out of the business. A radical change was needed in order for Marvin to consider staying and growing the company.

The opportunity for change arrived in 1994 when Datavantage acquired the services division of LDI, with Chaz joining Datavantage as part of this acquisition. LDI was a reseller of products for store systems and provided a complementary foundation for Datavantage’s further development. This dramatically changed Marvin’s perception of Datavantage’s future potential.

Also in 1994, the organization made a conscious decision to better control its own destiny and transition away from reselling third party software and into internally developing its own Point of Sale software products. After developing Store 21, a complete store management system based on full transaction Point of Sale (POS) applications software, Chaz and Marvin were considering the acquisition of XBR Track, a small loss prevention software company, based in Boston, Massachusetts.

The opportunity for XBR Track emerged out of the need of Specialty Retailers to minimize their internal losses from theft and shrinkage. Chaz and Marvin determined that retailers in the U.S. were losing an average of 2 percent of sales due to retail theft or shrinkage each year. The losses due to shrinkage directly affect the bottom line of the retailer in the form of a pure profit loss. It was estimated that retail employees account for 55 percent to 75 percent of lost revenue because of various fraudulent transactions. Transaction fraud ranges from improper cash refunds and price overrides to employee discount abuse and fraudulent credit card activity. XBR Track was offering the retail industry a solution to the $13.2 billion loses annually due to employee theft.

Chaz and Marvin find themselves in the final stages of negotiation to acquire XBR discussing many related issues regarding the acquisition and its impact on the entrepreneurial culture currently at the company. While there is no doubt about the attractiveness of the acquisition, the case brings up multiple concerns about the post-acquisition integration directly relating them to the challenge of continuing the organizational entrepreneurial culture. Specifically, the two founders are concerned with whether Datavantage will be able to successfully serve the existing customers and maintain its current level of customer support; whether XBR’s geographical location will become an issue during the integration; whether the existing sales force has enough knowledge and competency to sell XBR; and whether Datavantage will be able to effectively execute the “get into the castle” strategy intended for XBR. Above all, however, Chaz and Marvin were wondering if the potential rapid growth that XBR can provide for Datavantage can have a negative impact on the small start-up entrepreneurial culture that made the company successful.

1. There are many reasons for the growth success of the company for its current (at the time of the case) growth. What does the case describe as the main reason? Hint: it has to with entrepreneurship.
2. What are the aspects of the company’s performance that are directly affected by these factors? Identify what aspects of the company’s performance are directly affected by its ability to sustain and nurture its entrepreneurial culture. What are the 3 areas that ensured the company’s success?

In FY 2007, what Lovallo & Sibony counter-balancing practice did the Blockbuster Board deploy? What cognitive bias was the practice intended to address? What is Blockbuster's value proposition and what L&S cognitive bias best describes it? Select the single best available answer from those presented below.

A) Shaking things up by firing Mr. Antioco and hiring Mr Keyes as CEO; Anchoring and insufficient adjust bias; a value-priced entertainment experience, combining the broad product depth of a specialty retailer with local neighborhood convenience; inappropriate attachment.

B) Purchased MovieLink, LLC; Champion bias; a value-priced entertainment experience, combining the broad product depth of a specialty retailer with local neighborhood convenience; inappropriate attachment.

C) Shaking things up by firing Mr. Antioco and hiring Mr Keyes as CEO; Anchoring and insufficient adjust bias; 4,855 stores in the United States; Overconfidence.

D) Purchased MovieLink, LLC; Excessive Optimism; a value-priced entertainment experience, combining the broad product depth of a specialty retailer with local neighborhood convenience; inappropriate attachment.

In FY 2007, what Lovallo & Sibony counter-balancing practice did the Blockbuster Board deploy? What cognitive bias was the practice intended to address? What is Blockbuster's value proposition and what L&S cognitive bias best describes it? Select the single best available answer from those presented below.

A) Shaking things up by firing Mr. Antioco and hiring Mr Keyes as CEO; Anchoring and insufficient adjust bias; a value-priced entertainment experience, combining the broad product depth of a specialty retailer with local neighborhood convenience; inappropriate attachment.

B) Purchased MovieLink, LLC; Champion bias; a value-priced entertainment experience, combining the broad product depth of a specialty retailer with local neighborhood convenience; inappropriate attachment.

C) Shaking things up by firing Mr. Antioco and hiring Mr Keyes as CEO; Anchoring and insufficient adjust bias; 4,855 stores in the United States; Overconfidence.

D) Purchased MovieLink, LLC; Excessive Optimism; a value-priced entertainment experience, combining the broad product depth of a specialty retailer with local neighborhood convenience; inappropriate attachment.

Staples’ statement of cash flows reports expenditures for acquisition of businesses. It also reports additions to long-term debt. Suppose the businesses had been acquired not with cash, but by exchange for debt securities. Would such a transaction be reported? Explain.

Prove that equation have a unique solution through the point (0,1). With the knowledge acquired can you exhibit explicitly that unique solution for a and b?

(a) y' = y - y^2

(b) y' = y^2 - y^3

What do you think would happen if an Asiatic Streptococcus strain acquired genetic information from a European Streptococcus by means of a plasmid, integrated it into a CRISPR array, and then was shipped on a load of “active culture” Yak milk to London?