DOJ joins SEC in probing ADM accounting practices

In an annual report filed Tuesday, ADM said it received voluntary document requests from the DOJ after the company announced in January it was placing Chief Financial Officer Vikram Luthar on administrative leave pending an investigation into “certain intersegment transactions.” The probe was prompted by an SEC document request.

Historically, “Intersegment sales have been recorded at amounts approximating market,” ADM said, but the company identified certain sales between segments that were not.

The company determined that because each sale to be adjusted occurred between reporting segments, the adjustments had no impact on its consolidated balance sheets, statements of earnings, comprehensive income, or cash flows and were therefore not material to its consolidated financial statements.

However, during the fourth quarter of 2023, the company identified material weaknesses in its internal control over financial reporting (ICFR) related to accounting practices for intersegment sales.

The ICFR weaknesses resulted from “inadequate controls that allowed for certain intersegment sales to be reported at amounts that were not in accordance with [Accounting Standards Codification] 606, Revenue from Contracts with Customers,” ADM said in the filing.

Specifically, the company said the absence of adequate controls “impacted the accuracy of the company’s segment disclosures and review controls over projected financial information utilized in goodwill and other long-lived asset impairment tests.”

ADM said it implemented enhancements to its internal controls to remediate material weakness in ICFR, including:

• Updated accounting policies with respect to the measurement of intersegment sales;
• Improved and documented pricing guidelines for intersegment sales;
• Enhanced design and documentation of the execution of pricing and measurement controls for segment disclosure purposes and projected financial information used in impairment analyses; and
• Increased training on the measurement and application of relevant accounting guidance to intersegment sales.

Other remedial actions included installing a new enterprise resource planning system on a worldwide basis, which is expected to occur in phases over the next several years, ADM said.

The company noted the DOJ probe directed grand jury subpoenas to certain current and former employees. It said it is cooperating with the investigation.