Parmalat accuse Grant Thornton of fraud

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Accountancy Age and the Financial Mail report:

Grant Thornton International faces a £5bn claim from food giant Parmalat which accuses the firm of an 'active role' in 'looting' the company when its founder and his chief financial officer attempted to conceal losses.

According to Financial Mail, Parmalat administrator Enrico Bondi states in legal documents that the accountancy firm had an 'active role' in 'looting' the company. The writ states:

Grant Thornton and Parmalat insiders hid losses and diverted funds to themselves

Grant Thornton's former Italian partners, Lorenzo Penca and Maurizio Bianchi, are accused of being key players in the fraud.

In practice the Italian firm that serviced Parmalat is no longer part of Grant Thornton International (GTI), as a result of which they claim they cannot be held responsible for its actions. However Parmalat alleges fake credit and loan notes were written and a web of fake front companies created and that many of these were based in Grant Thornton offices around the world, and in some cases with its accountants acting as directors.

Nothing has been proven of course, and the chance that this action will reach court is remote: Deloittes has already settled a claim with regard to their audit of Parmalat but it would seem that the latest claim is very different. It also raises very serious questions:

1) When is a firm not a firm?

2) How liable is a firm of accountants for the accounting structures it creates?

3) Are nominee directors from firms of accountants liable for the actions of the companies they notionally direct?

4) How can a firm audit the parent of a group of companies where some members are directed by members of its associated firms?

5) Should an auditor be allowed to create offshore structures for clients of a company audited by any member of their network?

My answers are easily provided: GTI represented itself as a firm so it was a firm, and therefore is liable as such. Accountants are of course responsible for companies they create especially if they direct them, whether they claim to be nominees or not, and there is an unambiguous answer to 4 & 5: these actions are in conflict with being auditor.

If this case comes down to ethics GTI are in real trouble. Better though, this gives a chance to resolve these issues which are at the core of both the responsibility of the profession and its role in creating offshore structures.


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