Parmalat Case Answers
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
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