Acct 574 Case Study 1

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THE PARMALAT SCANDAL The Parmalat situation started out as a fairly standard – although sizeable –accounting fraud. Not even the best auditors could prepare for what was to come from this company. The Parmalat group, a world leader in the dairy food business, collapsed and entered bankruptcy protection in December 2003 after acknowledging massive holes in its financial statements. This happened when billions of euros seem to have gone missing from the company’s accounts. This dramatic collapse has led to the questioning of the soundness of accounting and financial reporting standards as well as of the Italian corporate governance system. Parmalat, which is headquartered in the central Italian city of Parma, was, like most Italian…show more content…
Most of the money that moved in, around and out of the company has since been traced, although the final destination of some of it is still unknown. Tanzi has admitted transferring some €500 million to family firms, but investigators say that up to €1.3 billion may have gone this route. Tanzi was sentenced to 10 years in prison for fraud relating to the collapse of the dairy group. The other seven defendants, including executives and bankers, were acquitted. Another eight defendants settled out of court in September 2008. In September 2009, three lawsuits by Parmalat Capital Finance Ltd. and Enrico Bondi, CEO of Parmalat, against Bank of America and auditors Grant Thornton, were dismissed. In an attempt to downplay the extent to which corruption and fraud have penetrated to the heart of global capitalism, commentators have seized on the fact that many of Parmalat’s former top executives are related to claim that the scandal is simply a case of a “family firm” failing to adhere to good corporate governance practices. Not surprisingly, Parmalat’s top executives are going along with this story, insisting they were only acting “under orders” from the padrone. The scandal, however, has engulfed other major firms. There are the accounting firms—Grant Thornton and Deloitte and Touche, and the banks—Citicorp and Bank of America. Citicorp is directly linked to the $1.5

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