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 milk-

derivative 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 company’s 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, Parmalat’s 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 auditor’s 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 about products and services,

geographical areas and major customers.

Effectiveness, advantages and disadvantages of Sarbanes- Oxley 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 can’t 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.