Summary

Parmalat, which was headquartered in the central Italian city of Parma, was, like
most Italian firms, launched as a family business. It was the largest Italian and the
fourth largest in Europe. As a leading multinational Dairy and Food Corporation,
Parmalat was controlling around 50% of the Italian market in milk and milkderivative products. The company was a leading producer of such items as
pasteurized milk, cheese, yogurt, cookies, juice and iced tea, most of which are sold
under a variety of names in different countries. Having become the leading global
company in the production of long-life milk using the ultra-high-temperature (UHT)
process, the company collapsed in 2003 with a 14 billion ($20bn; 13bn) hole in its
accounts in what remains Europe's biggest bankruptcy.
The story began in 1997 when Parmalat started their operation globally, especially
in Western Hemisphere. But no later than 2001 many of the new divisions of the
company were producing continuous losses. Towards the end of 2003, it was
revealed that the company had been resorting to fraudulent accounting practices
from the late-1980s and had been in the habit of transferring large amounts of
money from the Parmalat group to several other overseas subsidiaries or companies
owned by the Tanzi family. The scandal came to light only in December 2003, when
Parmalat was not in a position to honor a bond payment that had become due, but
analysts had been doubtful about the company's accounting practices since 2002.
In the early 2003, company unexpectedly announced a new 300 million bond
issue. It came as a real surprise both to the markets and to the CEO. The financial
condition of the company was not fit for the new fund raising program. So the plan
for new fundraising of 300 million dropped in the end of September 2003. By then
the companys debt was raising gradually.

In the middle of 2003, bondholders

learned that nearly 4bn of funds in a Bank of America account was non-existent.
The bank says the transfer document is a forgery. Trading in Parmalat shares are
frozen. It needed to pay several debts and made bond payments totaling at least
150M. Italian Government initiated a fraud investigation and appointed Enrico
Bondi to administer the company's rescue. Hundreds of thousands of investors lost
their money and would never recover it. In December 2003 the company officially
went bankrupt and the CEO/Chairman, the CFO and other top executives got

arrested. In 2004, Parmalats debts were fixed at 14.3 billion by the auditors, eight
times what the firm had admitted.

Sarbanes-Oxley Act of 2002 SOX Rule

Audit committee must have to be independent. Auditors are not the

employee of the company they are not related to management if the audit

committee is not independent they try manipulating the figures.

Audit Company must have to be rotate in every 5years. Audit Company
rotated in every 5 year to ensure that auditors relation is not become

friendly with managers or CEO and CFO.

When there is an accounting restatement CEO and CFO must forfeit bonuses
and profits. If there is any false or wrong find out in later year they must have
to pay it back.

IAS/IFRS Rule

IFRS 7 In the IFRS 7 rule provide disclosure in financial statement which

enables investors to evaluate the significance of financial statements.

IFRS 8 In the IFRS 8 rule shows how entities should report information
about their operating segments in annual financial statements and gives
requirements

for

related

disclosures

geographical areas and major customers.

about

products

and

services,

Effectiveness, advantages and disadvantages of SarbanesOxley Act of 2002 SOX Rule

a) Effectiveness of Sarbanes-Oxley Act of 2002 SOX Rule: In the
Parmalat Company audit committee is completely dependent on Tanzi family.
After adopting the SOX act Parmalat audit committee must have to be
independent. As par SOX, bored should have more than 50% independent
director but in the Parmalat bored was composed of more than 50%
dependent directors.
b) Advantages of Sarbanes-Oxley Act of 2002 SOX Rule:
Parmalat is a family owned company of Tanzi & Sons. Tanzi is founder,
chairman and CEO of the Company. The responsibility of both chairman
and CEO is not different. According to SOX act a person cant be
chairman and CEO at a time which is an advantage of using SOX act.
Parmalat has lack of rotation of external auditors. After using the SOX
act Parmalat must have rotate the auditors in every 5 years.
c) Disadvantages of Sarbanes-Oxley Act of 2002 SOX Rule: Even though
SOX has a major advantage there are some minor disadvantages also. The
biggest disadvantage to this program is that it is costly. In order to apply this
rules Parmalat pay large amount of money which is negatively affected the
investors in the long run.

Effectiveness, advantages and disadvantages of IAS/IFRS

Rule:
a) Effectiveness

of IFRS Rule: In the Financial report Parmalat showed the

wrong disclosure. After using the I

b) Advantages of IFRS Rule:

The company was facing debt which is more than double which was
disclosure in financial report. Parmalat shown the wrong disclosure of
financial report. After using the IFRS 7 rule Parmalat can eliminate

wrong disclosure in the financial asset.

After using the IFRS 8 involves Parmalat involves dividing the sectors
and reporting financial or non-financial information for each of the
parts.

c) Disadvantages of IFRS Rule:

Preparation of financial information may

incur extra cost while preparing the disclosers as most of the disclosures
mentioned in IFRS 7 & 8 did not exist in previous guidance.