Momentum Accounting and supply chain impact

An article in the Wall Street Journal (Sept 27, 2011) described a “momentum accounting” decision by Diamond Foods to pay walnut growers about 25 cents a pound or more. The company described it as an attempt to maintain profitability of its walnut suppliers. But is that payment part of the leftover payment for the previous year or an early payment for the next year. The belief that the correction to pulling the payment earlier would decrease stated profits and thus dampen the company’s share price (which dropped significantly by the end of the year), even diminishing its ability to buy Pringles from P&G. Should company payments to suppliers be permitted to consider a multi-period perspective as in this case or be forced to be a cash flow perspective ? Given that Diamond Foods purchased 40 % of the walnuts in California, should its actions be constrained to protect supplier interests or should it be free to sign its contracts any way feasible ?

About aviyer2010

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