Parmalat Case Answers

Topics: Audit, Big Four auditors, Financial audit Pages: 5 (1223 words) Published: May 3, 2015
Parmalat Finanziaria, S.p.A. Case
Brief Summary:

Case Questions:
1). Identify key factors or circumstances that complicate an independent audit of a multinational company One thing to always keep in mind is that the culture is different across the globe. Auditors of multinational companies may face cultural and communication barriers with their clients, which can complicate audit tasks. We also have to account for different currency across different countries and any transactions involving them. One has to closely monitor the exchange rates to avoid overstating or undermining revenue. We also have to consider different accounting and financial reporting treatments for the same transactions and accounts. Auditor’s role is to ensure that proper accounting and financial reporting standards are applied to the client’s financial statement data as we all know standards in U.S are different from those of Europe (Italy to be more specific)…GAAP and IFRS respectively. 2) What audit procedures would likely have been the most effective for detecting Parmalat’s fraudulent double-billing scheme? After two consecutive business venture failures, one to establish its own television broadcasting and another a substantial operating losses on its Brazilian subsidiary, Tanzi and Tona decided it would be for the best to cover them up. The cover up scheme they came up with was double-billing, were once you sell an item you record it twice. It wasn’t too long that Parmalat generated billions of bogus revenue. Parmalat’s fraudulent double-billing scheme is kind of internal controls of billing, similar to Crazy Eddy case, Parmalat had a lot of family members working for the company. In our opinion, this can be discovered by an auditor with a simple check of actual receipts and other related data. As such, data selection would probably be the best shoot at catching bogus revenue entries. An auditor would pick a series of randomly selected transaction to check whether or not they are fraudulent. Since T & T had billions of bogus revenues this should have been a fairly easy find. 3). Identify the fraud risk factors that were present during the Parmalat audits. Rank order these risk factors from the most important to the least important. 1. 35 bond issues

2. Obtaining large amounts of loans
3. Retained primary auditor
4. Large amount of SPE’s
5. Account “999”
6. Family controlled business
4). According to generally accepted auditing standards (GAAS), how should the responsibility from performing “shared audits” be allocated to the accounting firms involved in such engagements? Auditors should follow GAAS on their portion on “shared audits”. Under Au section 543, the primary auditor can elect to take responsibility for the other auditors. If this is the case they should be sure that the work of the other auditors follows GAAS. If they elect not to they a note should be made of the work that the auditors did. 5). Do you believe that the individual national practice units of international accounting firms’ global networks should face joint and several liabilities? In our opinion, the individual national practice units of international accounting firms’ global networks should face joint and several liabilities. The efforts put forth by international accounting firms, such as Deloitte and Touche and Grant Thornton, to present themselves as unified, worldwide organizations backfired dramatically in one major respect. Because of this, a growing number of plaintiffs at this time began to name a given firms’ entire global organization as a defendant instead of just the individual national practice unit. In the Parmalat case, the plaintiff legal counsel was able to present evidence that DTT and GTI, the global organizations for the two firms that handled the independent auditing duties of the fraudulent firm, routinely made important decisions for their individual national practice units involving legal matters and risk management issues....
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