Campbell Soup Case
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
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