8Ed.sol2.7

8Ed.sol2.7 - CASE 2.7 CAMPBELL SOUP COMPANY Synopsis The...

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CASE 2.7 CAMPBELL SOUP COMPANY Synopsis The Campbell Soup Company has dominated the soup “industry” since the company developed a cost-effective method of producing condensed soup products in 1899. Throughout most of the twentieth century, Campbell was known as one of the most conservative companies in the United States. In 1980, Campbell startled the business world by selling debt securities for the first time and by embarking on a program to lengthen and diversify its historically “short” product line. Despite a sizable increase in revenues, the diversification program failed to improve Campbell’s profitability, which prompted the company’s executives to refocus their attention on their core business, namely, manufacturing and marketing soup products. Unfortunately, by the end of the twentieth century, the public’s interest in soup was waning. Faced with a shrinking market for its primary product, Campbell’s management team allegedly began using a series of questionable business practices and accounting gimmicks to prop up the company’s reported profits. A class-action lawsuit filed in early 2000 by disgruntled Campbell stockholders charged top company executives with misrepresenting Campbell’s operating results in the late 1990s. The principal allegation was that the executives had used a variety of methods to inflate the company’s revenues, gross margins, and profits during that time frame. Eventually, PricewaterhouseCoopers (PwC), Campbell’s independent audit firm, was named as a co- defendant in the case. The plaintiffs in the class-action lawsuit claimed that PwC had recklessly audited Campbell, which effectively allowed Campbell’s executives to continue their illicit schemes. This case examines the allegations filed against PwC by Campbell’s stockholders with the primary purpose of illustrating the audit objectives and procedures that can and should be applied to a client’s revenue and revenue-related accounts. The case also provides students with important insights on how the Private Securities Litigation Reform Act of 1995 has affected auditors’ civil liability in lawsuits filed under the Securities and Exchange Act of 1934.
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126 Case 2.7 Campbell Soup Company Campbell Soup Company—Key Facts 1. During much of its history, Campbell Soup was known as one of the most conservative large companies in the U.S. economy. 2. Campbell’s conservative corporate culture abruptly changed in the 1980s when the company sold debt securities for the first time and embarked on an ambitious program to diversify and expand its product line. 3. In the late 1990s, after the diversification program had produced disappointing financial results and when market data indicated that the public’s interest in soup was waning, Campbell executives allegedly began using several illicit methods to meet Wall Street’s earnings targets for the company. 4.
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8Ed.sol2.7 - CASE 2.7 CAMPBELL SOUP COMPANY Synopsis The...

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