Parmalat Case

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Something Went Sour at Parmalat Parmalat is a multinational Italian dairy food corporation that today represents one of the biggest fraud scandals that has marked history in Europe. What happened and why weren’t the scandalous activities detected beforehand? Parmalat’s investigation was triggered when it “defaulted on a $187 million bond payment in mid-November 2002.” This led to further revelation of the nonexistence of $4 billion worth of claimed bank deposits held by a subsidiary in the Cayman Islands in a Bank of America account. The company was basically falsifying accounts in order to increase assets and hide losses. The increase in assets would influence the public to believe that they were in a good position which in turn allowed…show more content…
As auditors, they have the responsibility of not only requesting a confirmation, but they should also follow up on necessary procedures to make sure that this process is accurately completed. Their duty is to be able to have control over this process from beginning to end in order to be able to rely on the evidence requested.
Additional steps should have been taken by the auditors when they received the smudged fax copy printed on the Bank of America letterhead. As mentioned before, the evaluation of the evidence obtained is as important as requesting it. The firm did not confirm the forged documents with the bank; for this reason, the evidence remained unreliable and the forgery wasn’t revealed until later. Auditors should have been concerned with knowing where and whom the confirmation letters came from. Was the initial confirmation request mailed directly by Grant Thorton SpA or by Parmalat or was it obtained directly from the bank? Auditors should be aware that confirmations that are sent through fax are much less reliable than confirmations sent by mail. Their duty was to find out if the correct process was altered in any way.
Additional concerns have been made in regards to the red flags missed by auditors. First of all, auditors should have been alarmed by the size of the cash account held in the Cayman Islands. Auditors should have remained skeptical about the existence of this account. They should’ve addressed this red flag with
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