ADM Has Yet to Get a Handle on Accounting Months After Scandal
(Bloomberg) — Almost 10 months after a scandal that shook Archer-Daniels-Midland Co., the commodity-trading giant is still struggling to sort out its accounting.
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ADM, which in March adjusted its financial disclosures going back to 2018, said late Monday that it found more errors in the way it reported transactions between its business units. The crop trader said it will restate results for last year and the first and second quarters of 2024. The move prompted ADM to cancel its quarterly earnings call with analysts only 14 hours before it was due to start.
The Chicago-based company said it will make the formal corrections “as soon as reasonably practicable,” and it doesn’t expect any material impact from the changes. But even as the financial impact of the errors on consolidated earnings have so far been minor, the broader consequences could be significant as investors lose confidence in the company.
ADM has erased almost $12 billion in market value since the accounting issues first became public in January. The stock plunged as much as 12% on Tuesday to the lowest level since December 2020, heading for its worst annual performance in almost a decade. The scandal has drawn investigations by the Department of Justice and Securities & Exchange Commission, and the company removed Vikram Luthar from the Chief Financial Officer role.
ADM said earlier this year it has identified “material weakness” in its internal controls over financial reporting of transactions between units, which totaled roughly $4.4 billion last year. The newly identified errors were found as the company started testing new controls — a process it said will continue through the end of the year. The decision to formally restate previous financial statements was taken by ADM’s board after discussions with the SEC.
Representatives for ADM and the SEC each declined to comment.
Assessing whether errors are significant requires considering a broad mix of information, not just numbers, according to SEC guidance. A small numerical error can become serious if it affects compliance with loan covenants, changes earnings, or boosts executive pay, among other factors.
“It is entirely possible for something to not be quantitatively material and yet still be qualitatively material,” said Bruce Pounder, founder of GAAP Lab, an accounting advisory firm.
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