Parmalat was an Italy based dairy company that was started in 1961 by Calisto Tanzi. The company became a multinational company in the 1980's and employed over 30,000 people in 30 countries. The company was Europe's biggest dairy company until its collapse in 2003.
In 2003 the CFO, Fausto Tonna, announced a 500 million euro bond issue, and was forced to resign. The new CFO appointed, Albert Ferraris, did not have access to some of the companies accounting books and began suspecting the companies debt was larger than it reported. Soon after going through a few more CFO's and the resignation of CEO Calisto Tanzi, Bank of America released a document showing a 3.95 billion euro bank account was forged. A fraud investigation began, and investors suffered huge losses when the company declared bankruptcy. The former CEO Tanzi was arrested and admitted an 8 billion euro hole in Parmalat's books. The auditors of the organization found the companies debt to be 14.3 billion euro which was almost eight times the amount originally reported. Tanzi later admitted to diverting funds from Parmalat to other subsidiaries of the company. He was charged with fraud and money laundering, and was sentenced to 10 years in prison.
The company's questionable accounting practices included selling itself credit-linked notes. They basically placed a bet on their own debt, and created an asset from nothing.
This is another of the huge accounting scandals outside of the United States, along with Satyam in India, that many people in the United States may not know about. It is important for accountants and auditors in the United States to recognize and know about the frauds that have occurred in recent years around the world. Knowing about these frauds will educate auditors on how to better recognize when fraud is occurring in a company.
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