Parmalat - The Fall of a Dairy Giant

In January 2003, soon after the company declared its results for 2002, reports began circulating among bankers and investment firms about the company's balance sheet and its high levels of debt, in spite of having considerable assets and high cash reserves (Refer Exhibit-III for Balance Sheet of 2002).

This resulted in Consob, the Italian stock market regulatory authority, asking Parmalat to explain the rationale behind raising high levels of debt, given high cash reserves. Early in the year, the company was also forced to withdraw a bond issue valued at $360 million, after the company's share price fell by nine percent. Fausto Tonna (Tonna), Parmalat's long-standing CFO and aide of Tanzi, resigned in April 2003...

However, a number of non-existent assets had been created to show money where it did not exist.

Analysts said that this was rather different from other cases of fraudulent accounting, where money was diverted from the company to enrich a few of the top people. In Parmalat's case, the money was either diverted to other companies (within the group or belonging to the Tanzi family) to keep them afloat or did not exist in the first place. Investigations revealed that the fraud had first begun in the late-1980s. The company had expanded very rapidly into international markets in the 1980s. However, not all the international operations were successful...