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Parmalat

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carmen bang

on 25 October 2012

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Transcript of Parmalat

Jul - Oct 2004
Parmalat sues the following seeking damages
in the billions: 1961 1990 Parmalat begins to diversify from its usual diary products into pasta sauces, soups, fruit juices and biscuits. Parma 1999 The company sets up off-shore subsidiary Bonlat in the Cayman Islands, now at the center of the allegations of fraudulent accounting During the 1990s, Parmalat became listed in the Milan Stock exchange. 2002 The company later acquired subsidiaries all over the world. This includes Asia, southern Africa, Australia, North and South America and is currently moving into the Eastern Europe. Parmalat's share price reaches a record Valuing the company at more than 3.7bn euros ($4.4bn)
http://play.kendincos.us/112322/Wfjfjtxfjrvtxrvdhhl-former-parmalat-boss-behind-bars.html The Scandal Feb 27, 2003
Parmalat gives up trying to sell 500m euro bond issue,
citing unfavourable market conditions Mar 28, 2003
CFO Fausto Tonna resigns Sep 12, 2003
Parmalat drops plan for 300m euro debt sale Nov 11, 2003
Shares drop significantly over questions regarding transactions with Epicurum fund in the Cayman Islands 2 4 Dec 9, 2003
The company misses a 150m euro bond payment Dec 15, 2003
Mr Tanzi eventually resigns as chairman and CEO and is replaced by Bondi when Parmalat goes into administration 2003 Dec 19, 2003
Bank of America claims a document showing 3.9bn euros in off-shore affiliate Bonlat's bank account is forged. 2004 22 Dec, 2003
Parmalat shares hit their lowest level, losing 97% of their value, and are suspended. The company is valued at just under 90m euros
24 Dec, 2003
Parmalat goes into administration 31 Dec, 2003
Police arrest five former Parmalat executives including Fausto Tonna and Luciano Del Soldato. 2005 Jan 26, 2004
Auditors determine that Parmalat had debts of 14.3 bn euros as of Sep 2003 (almost 8x what management had claimed)

Jan 28, 2004
Grant Thornton expels Italian partner firm.Deloitte auditors are investigated by Italian officials May 26, 2004
Prosecutors call for members of management,
Bank of America and Parmalat's two auditors to stand trial 25 Jan, 2005
The compensation claims by the and
has been rejected. 3 Feb, 2005
Parmalat reports a doubling of ¾ pre-tax profit to 77m euro from a year earlier. Europe's Enron 27 May, 2005
Italy's financial markets regulator Consob eventually permits Permalat to be reenlisted to the stock exchange. How did the scandal happen? Missing audit procedures Treatment of offshore subsidiaries Impact of fraud on auditors 23 Jun, 2005
accepts a 155m euros settlement with Parmalat relating to a prior bond deal in 2003. Questions? Lessons Learned The Beginning Primary issue is that there were two auditors
Deloitte relied on Grant Thornton's audit reports prepared for the subsidiaries
Deloitte failed to verify irregular and suspect accounting entries
A reconciliation of the intercompany transactions on a consolidated basis would have detected the 8bn euro imbalance
Because the credit was material, Deloitte should have confirmed the cash balance with BofA directly Grant Thornton and Deloitte have been targets for lawsuits
The firms faced more than $10 bn over their roles as auditors of Parmalat
Loss of market share to other top tier and middle tier auditing firms (PwC) Understand the risks and nature of the business Parmalat was in
Attaining insight on the potential conflict of interests and independence issues
Auditors must possess a higher level of professional skepticism and lower materiality levels
Written management letters for claims made by management
Confirmation of statements by independent parties
Inspection of tangible assets and various documents
Scanning for large and unusual transactions · Lack of corporate governance
· Tanzi family members held 51% of its shares and many of them had key positions in Parmalat and its subsidiaries
· Lack of independence within Parmalat’s corporate structure
· Parmalat lacked a diverse arrangement of key board committees
· The transparency of many decisions and concerns were not disclosed to stakeholders, such as executive and director salaries and stock ownership held by directors and officers
· The board failed to set guidelines and properly disclose details surrounding evaluations, term limits, and retirement ages Independence and corporate governance rules Parmalat's internal controls and risk mitigation what is independence?
compliance with the basic fundamental principles
honesty
integrity
objectivity
public interest over self interest
SOX rules to prohibit certain nonaudit services auditors with independent understandability in exercising due care
professional skepticism
ethic advisors
board of directors Responsibility of creditors The banks cannot be responsible for the lending of the money.
The audits were conducted by an outside source and not by the bank itself.
2 big firms conducted these audits ( Deloitte and Grant Thornton)
and the banks trust their auditing skills
The banks can be held responsible if these audits were conducted by small auditing firms that no one has heard of
To prevent the banks from losing their money they can get secured bonds from the company Bankruptcy projection models Bankruptcy projection models should become a regular tool used by auditors, creditors, and regulators.
Cases like Parmalat could be prevented from the beginning
Bankruptcy projection models can help predict on how the company is doing and whether or not it will file for bankruptcy.
By using bankruptcy projection models it can save a lot of people money because people will not invest in a company that is on the verge of bankruptcy. Risks in Parmalat's control environment Risks in Parmalat's strategy Integrity and ethics
commitment
audit committee participation
management philosophy
structure
authority Operating environment
New people and systems
Growth
Technology
New business
Restructurings
Foreign operations Integrity and ethics:
misrepresentation of the financial statement numbers
Commitment:
major risk of commitment is not being able to follow through with it
Audit committee participation:
risk of independence and due-diligence
Management philosophy:
contributes to fraud when the tone at the top is inappropriate
Structure:
control was held primarily by Tanzi's family members banks provided financial resources to contribute to the fictitious economic situation of Parmalat's accounts
Authority:
chose to make investments using the company's funds in areas unrelated to the business Changes in operating environment:
Companies were created with the motive of inter-company fund transfers, disguised as sales revenue, receivables, or loans to make look more liquid.
New people and systems:
auditor's testing procedures were not substantive and aggressive
Growth:
Parmalat's expansion globally created losses which led to fraud committed to cover them up
Technology:
CFO fabricating documents to fax to auditors to hide the existence of subsidiaries
New business:
acquired many subsidiaries with Tanzi's family holding the key position in them
Restructurings:
fictitious companies were created to set up false receivable and loan accounts
Foreign operations:
Operations outside of the main country are risky because of their lack of transparency.
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