Ten Publicized Audit Failures

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AFM 201 – Part 1 Auditing Fall 2007 Group Assignment 2 Publicized Cases of Alleged Audit Failures Involving Large Public Companies 1) Ten Publicized Audit Failures i. Parmalat (2003) - Deloitte & Touche Tohmatsu /Grant Thornton Misleading investors with “Brazen Fraud” was what the United States (US) Securities and Exchange Commission (SEC) had sued Parmalat for in 2003. It all began when Parmalat defaulted on a bond payment worth $185 million. This raised a flag for auditors and banks, which then began to closely examine company accounts. According to Parmalat, 38% of their assets were apparently held in a Bank of America account, part of a subsidiary of Parmalat in the Cayman Islands, worth $4.9 billion dollars. This was later…show more content…
Income was overstated by $1 billion by the time investigations got moving. The SEC fined Arthur Andersen part of the $229 million for shareholder settlement and $7 million for issuing artificial and misleading reports. vi. WorldCom (2002) - Arthur Andersen Audited by Arthur Andersen, WorldCom went under investigation by the SEC for accounting fraud. Not only was cash flows overstated by booking $3.8 billion in operating expenses as capital expenses, $400 million was given to Bernard Ebbers, the CEO, in off-the-book loans. WorldCom stunned Wall Street with additional improperly booked funds total to $3.4 billion bringing a total restatement of $7.2 billion. WorldCom was prosecuted by DOJ, SEC, US Attorney's Office for the Southern District of New York and various congressional committees. vii. Enron (2001) - Arthur Andersen Enron headed by Ken Lay, also audited by Arthur Andersen was charged by the DOJ, SEC and various congressional committees. In this case, both the auditor and the company were charged. Enron boosted profits and covered over $1 billion in debts by inappropriately using off-the-books partnerships, while manipulating power markets and bribing foreign governments for contracts abroad. In essence, Enron took advantage of lenient regulations to defraud consumers and investors. While Enron was being charged with fraud, money laundering, securities

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