Corporate Failures: a Case of Pamalat
ABRAHAM, FLORENCE A.
M.SC. Accounting
B. I. U., BENIN CITY. NIGERIA.
January 2011
Abstract:
This paper focuses on the directors’ and accountant's behaviour and their contribution to Parmalat's fraud. It will also address how these gaps might be filled, and meanwhile propose some "solutions." First, we offer a brief description of Parmalat's group and of the events which forced the company to reveal its financial status. This will help to highlight a number of violations carried out by the directors and those who had the duty of controlling and watching over Parmalat, including the independent directors, accountants and the auditors. The atmosphere of laxity amongst the financial analysts, the rating agencies and the banks (as creditors, brokers, dealers, etc.), allowed Callisto Tanzi, the founder and the chairman of the group, and the other managers to perpetrate the fraud which eventually resulted in Corporate Collapse of Parmalat. The paper will not discuss on those areas.
1. INTRODUCTION Parmalat was the largest Italian food company and the fourth largest in Europe, controlling 50% of the Italian market in milk and milk-derivative products. Suddenly, it was discovered that it’s claimed liquidity of 4 billion euro did not exist, and that EU 8 million in bonds of investors' money had evaporated as well. Parmalat became the largest bankruptcy in European history, representing 1.5% of Italian GNP—proportionally larger than the combined ratio of the Enron and WorldCom bankruptcies to the U.S. GNP. Early history (1961–2002)
In 1961, Calisto Tanzi, a 22-year old college dropout, opened a small pasteurisation plant in Parma. Four decades later, the company had grown into a multinational corporation diversifying into milk, dairy, beverage, bakery, and other product lines in the 1980s, becoming listed on the Milan stock exchange in 1990, and expanding further in the 1990s. By 22 April 2002, Parmalat's share price had reached a record and
M.SC. Accounting
B. I. U., BENIN CITY. NIGERIA.
January 2011
Abstract:
This paper focuses on the directors’ and accountant's behaviour and their contribution to Parmalat's fraud. It will also address how these gaps might be filled, and meanwhile propose some "solutions." First, we offer a brief description of Parmalat's group and of the events which forced the company to reveal its financial status. This will help to highlight a number of violations carried out by the directors and those who had the duty of controlling and watching over Parmalat, including the independent directors, accountants and the auditors. The atmosphere of laxity amongst the financial analysts, the rating agencies and the banks (as creditors, brokers, dealers, etc.), allowed Callisto Tanzi, the founder and the chairman of the group, and the other managers to perpetrate the fraud which eventually resulted in Corporate Collapse of Parmalat. The paper will not discuss on those areas.
1. INTRODUCTION Parmalat was the largest Italian food company and the fourth largest in Europe, controlling 50% of the Italian market in milk and milk-derivative products. Suddenly, it was discovered that it’s claimed liquidity of 4 billion euro did not exist, and that EU 8 million in bonds of investors' money had evaporated as well. Parmalat became the largest bankruptcy in European history, representing 1.5% of Italian GNP—proportionally larger than the combined ratio of the Enron and WorldCom bankruptcies to the U.S. GNP. Early history (1961–2002)
In 1961, Calisto Tanzi, a 22-year old college dropout, opened a small pasteurisation plant in Parma. Four decades later, the company had grown into a multinational corporation diversifying into milk, dairy, beverage, bakery, and other product lines in the 1980s, becoming listed on the Milan stock exchange in 1990, and expanding further in the 1990s. By 22 April 2002, Parmalat's share price had reached a record and