Running head: ACCOUNTING QUALITY AND THE DIAMOND MODEL
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Accounting Quality and the Diamond Model
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ACCOUNTING QUALITY AND THE DIAMOND MODEL
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Accounting Quality and the Diamond Model
Over the years, there have been rampant cases where firms have negatively influenced
their profitability and investors as a result of measurement errors in their financial reports. Such
an incident transpired in a US-based food processing company known as Serena Foods Corp.
The company’s measurement error instant
According to a Wall Street Journal report, Serena Foods Corp discovered in 2016 that it
had understated its 2017 cash inflows by over $16 million[ CITATION Moh18 \l 1033 ]. The
review of the financial statements was instigated after adjustments in tax regulations, which
urged the Chief financial officers of various companies to carry out an in-depth examination of
the financial records of their respective companies.
The company’s action which instigated the error
The understatement triggered Seneca to price its stock at $1.27 per share, yet its actual
stock price stood at $1.60 per share [ CITATION Moh18 \l 1033 ].
Consequences of the action
According to Mohan (2018), the lowballing of its stock prices drifted away potential
investors since they could not see the real worth of the enterprise.
Steps that were taken by the company to rectify the error
Upon the discovery of the measurement error, Seneca reacted by undertaking a
restatement. Specifically, Seneca decided to backtrack through its financial statements and
reissue the annual fillings from 2014 to 2018[ CITATION get18 \l 1033 ]. The company
ascertained that the measurement error was attributed to insufficiency in its internal controls.
ACCOUNTING QUALITY AND THE DIAMOND MODEL
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Subsequently, Seneca has instituted new oversight procedures and enhanced its documentation
standards. Besides, it has trained its employees to foster efficient adaption of these changes
[ CITATION Moh18 \l 1033 ].
Relevant steps which could have been taken by Seneca to enhance accounting quality
Seneca could perform periodic technical audits on the financial records in the financial
departments. That could help ascertain and correct errors before publishing financial statements.
Moreover, the company could instate specific accounting policies that could control its internal
financial activities, as well as its collaborations with external companies and investors.
ACCOUNTING QUALITY AND THE DIAMOND MODEL
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References
getfilings. (2018). Seneca Foods Corp Reports. Retrieved from getfilings.com:
http://getfilings.com/
Mohan, N. (2018, Sept 20). Companies Are Finding More Accounting Flubs. Retrieved from The
Wall Street Journal: https://www.wsj.com/articles/companies-are-finding-more-
accounting-flubs-1537474747
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