ahold

Powerful Essays
ISSUES IN ACCOUNTING EDUCATION
Vol. 22, No. 4
November 2007 pp. 641–660

Europe’s Enron: Royal Ahold, N.V.
Michael C. Knapp and Carol A. Knapp
ABSTRACT: Royal Ahold, N.V., is a large multinational company based in The Netherlands that was founded in 1887 by Albert Heijn. Three generations of the Heijn family oversaw the company’s retail grocery business. In 1989, the company hired a professional management team. The new management team expanded Royal Ahold’s operations by purchasing grocery chains around the globe, resulting in the company becoming the third largest food retailer in the world. In 2000, the company diversified into the wholesaling segment of the huge food industry when it purchased U.S. Foodservice, a large food wholesaler based in Columbia, Maryland.
Royal Ahold’s professional management team established aggressive earnings and revenue goals for the company each year and pressured their subordinates to achieve those goals. An incentive compensation plan awarded large year-end bonuses to managers of operating units that met or surpassed their financial goals. Royal Ahold’s decentralized operations, when coupled with the strong incentives to achieve unrealistic earnings and revenue goals, created an environment in which fraud often flourishes. In early 2003, Royal Ahold’s independent auditors suspended their fiscal 2002 audit of the company when they discovered numerous potential irregularities in the company’s accounting records. Subsequent investigations documented that the company had improperly included the operating results of foreign joint ventures in its consolidated financial statements, had accounted improperly for initial acquisition costs related to several of those joint ventures, and had materially overstated ‘‘promotional allowances’’ due from company vendors. The disclosure of the massive accounting fraud resulted in criminal and civil lawsuits being filed against the company and its top executives in both Europe and the



References: Bickerton, I. 2006. Four Ahold directors face court hearing in accounting scandal. Financial Times (March 6): 28. de Boer, V. 2003. Ahold Fires CEO, CFO over inflated profit. Financial Post (February 25): FP12. de Jong, A., D. DeJong, G. Mertens, and P. Roosenboom. 2005. Royal Ahold: A failure of corporate governance Economist, The. 2003. Europe’s Enron. 366 (March 1): 55–56. Kolk, A., and J. Pinske. 2006. Stakeholder mismanagement and corporate social responsibility crisis. Koster, P. 2004. Europe’s auditors should give us the bad news. Financial Times (January 19): 13. Plender, J. 2004. Problems at Ahold, Parmalat, and now Adecco raise new questions about how global accounting firms work with multinationals Raghavan, A., A. Latour, and M. Schroeder. 2003. Questioning the books—A global journal report: Ahold faces scrutiny over accounting Royal Ahold. 2002. Code of Professional Conduct: The Basic Rules of the Game. Zaandaam, The Netherlands: Royal Ahold. Securities and Exchange Commission (SEC). 2004a. Complaint in re SEC vs. Resnick, et al. Available at: http: / / www.sec.gov. ———. 2004b. Accounting and Auditing Enforcement Release No. 2124. Washington, D.C.: Government Printing Office. ———. 2006. SEC rulemaking and other initiatives: Accommodations. Available at: http: / / www. Sterling, T. 2006. Royal Ahold executives fined after conviction. Associated Press Online (May 22). Taub, S. 2005. SEC charges seven in Ahold fraud. CFO.com (November 3). Available at: http: / / www.cfo.com. Walker, A. K. 2006. SEC faults KPMG audits. The Baltimore Sun (February 17): 1E.

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