Accounting - Parmalat Several Accounts Term Paper

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In this case, it was a $4.9 billion bank account. However, credit would have been granted against an asset like that. Finding such an account did not exist, banks would have wanted their money back, and Parmalat would not have had it. This would be grounds to take the company into insolvency, especially if somebody at Parmalat was counting on that account to pay off its debts.

4. These fraudulent activities, as noted, would have boosted the accounts receivable at Parmalat, and could potentially have reduced the inventories as well. The effect on the balance sheet, if the inventories were not affected, would have been to boost the a/R and therefore the current assets. As a result, the quick ratio would have improved, on the basis of an inflated accounts receivable.

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5. Citicorp was a victim here. There are some controls that can be done to ensure that the financial statements are accurate, but ultimately the bank had no reason to expect fraud. Even a bank conducting due diligence will have trouble picking up on a fraud. However, the bank could have insulated itself by not taking on the risk of lending to a company on the basis of accounts receivable. The bank could have insisted on the use of fixed assets as collateral or simply not lent the money at all. If I was Parmalat's banker, I might have turned down such risky business at least until the auditor had verified the accounts receivable that I was attempting to use as collateral for the loan.

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