Royal Ahold NV - The US Foodservice Accounting Fraud

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Case Details:

Case Code : FINC044
Case Length : 18 Pages
Period : 2000-06
Pub Date : 2007
Teaching Note : Available
Organization : Royal Ahold NV, US Foodservice
Industry : Retailing
Countries : US/Netherlands

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

According to John Hatherly, Head, Global Analysis, M&G Asset Management⁶, "Ahold's accounting irregularities revive unpleasant memories. This is the main driver of the share price today as an investor just cannot trust the company's figures."⁷ (Refer Exhibit I for share price chart of Ahold). The auditors of Ahold, Deloitte & Touche⁸ said that it had warned Ahold about the accounting problems in the USF. Deloitte said that Ahold had misled them and did not provide them with the information required to investigate the irregularities. In this context, Deloitte issued a letter to Ahold on February 24, 2003, stating that it would not stand by its earlier opinion regarding the correctness of Ahold's financial statements as mentioned in the annual reports of 2000 and 2001.

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In the letter, Deloitte stated that Ahold needed to restate its accounts for 2000 and 2001. According to Lynn Turner, former chief accountant at The United States Securities and Exchange Commission⁹ (SEC), "Although Deloitte uncovered the problems in the past few weeks, it should have done so much earlier."¹⁰

About Ahold

Ahold had been managed by the Heijn family for over three generations. Albert Heijn (Albert) took over management of his father's grocery store in Zaandam near Amsterdam in 1887, at the age of 22. Albert's untiring efforts made the store very popular for its high quality, reasonably priced products and services. Soon Albert opened a second store in Alkmaar, another town in the Netherlands. By 1897, the store count increased to 23. They were located in different parts of the Netherlands including the Hague and Amsterdam. In 1911, the first Albert Heijn branded products were introduced...

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6] M&G Asset Management is Prudential Group's asset management business. Prudential, a UK based financial services company, acquired the M&G group in 1999.

7] "Investors Slaughter Crisis Hit Retailer," www.bbc.co.uk, February 24, 2004.

8] Deloitte & Touche, also known as Deloitte, is an organization of member firms around the world providing professional services and advice, focused on client service through a global strategy executed locally in 150 countries. The company's revenues stood at US$ 18.2 billion in 2005.

9] The SEC is a United States government agency having primary responsibility for enforcing the Federal securities laws and regulating the securities industry. The SEC consists of five commissioners appointed by the President with the advice and consent of the Senate.

10] "Europe's Enron," Economist, March 01, 2003.