Parmalat
Case 8-2 Parmalat: Europe’s Enron
1. Review the facts in the case, especially the charges in the complaint, and evaluate the auditors’ compliance with GAAS. Do you think the auditor did all they could to detect the fraud? Evaluate whether auditors exercised due care and the level of professional skepticism to be expected in an audit the size of Parmalat.
Clearly, auditors failed to do the due diligence, thereby indirectly contributing to the failure of Parmalat. Italian law requires both listed and unlisted companies to have a board of statutory auditors as well as external auditors and also requires the reselection of auditors by the board of directors every three years and the rotation of auditors after three consecutive selections. A big size company, such like Parmalt, need independent auditor. What is independent auditor? The role of an independent auditor is crucial in protecting investors from dishonest management and has to be indifferent to the board. Meanwhile, the auditor should not be a friend of the company and should work completely independently. Parmalt’s internal auditors lack of the independent. They usually controlled by Tanzi family. The auditor also lack of professional prudence of auditing. They provide the financial reports and income statement is irresponsibility.
Based on this situation, suggest let the internal control responsible for administering authority and company board, when find big problems report to them at once. Auditors must be independent and have the corresponding knowledge, such some financial experts. Audit committee must pay more attention on evaluation enterprise risk assessment and care about CEO and CFO’s job investigation. Strict auditors’ rotated control is quite essential. Clear the function of an auditor. The auditor must responsible for merging accounting report forms.
2. Refer to the fraud triangle in Chapter 5. Categorize the various activities and decisions by Parmalat and its top management into one
1. Review the facts in the case, especially the charges in the complaint, and evaluate the auditors’ compliance with GAAS. Do you think the auditor did all they could to detect the fraud? Evaluate whether auditors exercised due care and the level of professional skepticism to be expected in an audit the size of Parmalat.
Clearly, auditors failed to do the due diligence, thereby indirectly contributing to the failure of Parmalat. Italian law requires both listed and unlisted companies to have a board of statutory auditors as well as external auditors and also requires the reselection of auditors by the board of directors every three years and the rotation of auditors after three consecutive selections. A big size company, such like Parmalt, need independent auditor. What is independent auditor? The role of an independent auditor is crucial in protecting investors from dishonest management and has to be indifferent to the board. Meanwhile, the auditor should not be a friend of the company and should work completely independently. Parmalt’s internal auditors lack of the independent. They usually controlled by Tanzi family. The auditor also lack of professional prudence of auditing. They provide the financial reports and income statement is irresponsibility.
Based on this situation, suggest let the internal control responsible for administering authority and company board, when find big problems report to them at once. Auditors must be independent and have the corresponding knowledge, such some financial experts. Audit committee must pay more attention on evaluation enterprise risk assessment and care about CEO and CFO’s job investigation. Strict auditors’ rotated control is quite essential. Clear the function of an auditor. The auditor must responsible for merging accounting report forms.
2. Refer to the fraud triangle in Chapter 5. Categorize the various activities and decisions by Parmalat and its top management into one