Financial Reporting at Mattel
In September 2020, Diana Ferguson, was nearing her first Audit Committee meeting as the newly appointed Audit Committee chair of Mattel, Inc. Mattel was just recovering from an accounting scandal which had revealed the company's poor internal controls and weak board oversight over financial reporting, and the committee had important decisions to make going forward. In early 2018, Mattel's Tax team had discovered a significant reporting error in its third-quarter financial results. In consultation with Mattel's independent auditor, PricewaterhouseCoopers (PwC), Mattel's finance team opted not to issue a correction and instead (effectively) concealed this mistake. This cover-up came to light in 2019, when an anonymous whistleblower reported the incident, setting off a chain of negative press coverage and senior-level resignations. Mattel responded by conducting an internal investigation, and concluded that, while their accounting processes needed to be improved, there was no evidence of fraud. Despite this, this issue had resurfaced in early 2020 when the United States Securities and Exchange Commission (SEC) launched a fresh investigation into the accounting error and subsequent cover-up. In light of these events, Ferguson and the Audit Committee faced a challenging road ahead with several important issues to consider. They needed to tackle Mattel's problematic governance and internal controls, and restore investor confidence in the company's financial disclosures. They also needed to review their earlier decision to continue to engage PwC as Mattel's auditor going forward.