Audit and Grant Thornton

5094 WordsMay 25, 201221 Pages
Executive summary In the dawn of 21st century, Italian company Parmalat suddenly collapsed with €14 billion in debt, which made it the biggest corporate failure in Europe history. This case provides us a good opportunity to investigate corporate governance issue in Continental Europe. In this paper will be initiated with introduction of Parmalat’s history and events review on its bankruptcy, followed by analyzing the shortcomings of its corporate governance in both internal and external aspects and finally the conclusions about why the corporate governance of Parmalat failed to prevent the scandal from happening will be drawn. Changes made by government in regulations after the scandal will be also revealed and at the end, we will put…show more content…
3. Financial Fraud The most distinctive feature of Parmalat’s financial reports was the coincidental high level of cash and debt. Similar to Enron’s, its disclosure policy was characterized by its management’s vague and arrogant approach towards analysts and investors. Traditionally, European companies hold more in assets than American companies do; so when the document was provided to explain the company’s assets in relation to its debt, nothing was seen as extraordinary. Figure 1 Parmalat(PAF) time line & International stock price In October 2002 the group launched a bond issue of 150 million, and in November a new bond issue by Parmalat Soparfi followed, with a value of €200 million and Morgan Stanley acting as the only bookrunner. These issues alerted the market. On 6 March 2003, the Italian asset management association wrote a letter to Parmalat and CONSOB, accusing the group’s lacking of transparency. As a reaction, Parmalat organized a meeting in Milan on 10 April 2003. During this meeting, Mr. Tanzi announced that the Group’s CFO, Mr. Tonna, had resigned and a new CFO, Mr. Ferraris, was in charge. The market reacted positively and the price rebounded after the February’s downturn. Mr. Ferraris, Parmalat’s new CFO, had promised that it would have used only cash to repay the Group’s debt. Nevertheless, in June, it was discovered that Parmalat had privately placed a new bond. The real amount of all pending bonds was still a secret. When

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