Case Study：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.
After review the material, it is apparently the auditors did not do all they could to detect the fraud Parmalat and its management conducted. Parmalat eliminated billions of its debt through various techniques, such as fictitious loan participation agreement; mischaracterize its bank loan as intercompany debt, etc. Since the definitely huge amount of the loan which should attracted the auditors’ due professional care in their assurance and attestation exercises, both Deloitte & Touche and Grant Thornton, however, failed to exam the deception. There is important issue I could not miss it, when the auditors wanted to confirm the account of Parmalat with Bank of America in the United States, they sent an email through Parmalat’s internal mail system rather than contact the bank directly. In fact, bank deposits are not complicated items to audit. They are to be matched to a bank statement as part of a company’s reconciliation procedures in order to assure that bank statements received by the client and used in the reconciliation process have not been altered. It is Achilles ‘heel. Even I do not have field experience of assurance, common sense tell me, as an auditor, who need to maintain the independence with your client you should not use their internal mail system, especially, when you are asking such significant evidence.
2. Refer to the fraud triangle in Chapter 5. Categorize the various activities and decisions by Parmalat and its top management into one of the three elements of the triangle.
