Mini- Case: Cash Confirmations. Refer to the mini- case “Something Went Sour at Parma-lat” on page C20 and respond to question 1.

On page C20
There was much confusion when Italian dairy food giant Parmalat defaulted on a $ 187 million bond payment in mid- November 2002. Default on a bond payment seemed difficult to believe considering that a Parmalat subsidiary in the Cayman Islands had a $ 4.9 billion cash balance in a Bank of America account. The problem was that the cash account did not exist. Subsequent investigation revealed that, over a 15- year period, Parmalat’s management had falsified accounts and created assets to hide losses of $ 10 billion from Parmalat’s Latin American operations. Other allegations charged that Parmalat’s management had lied about repurchasing $ 3.6 billion in bonds, which they had never done. By hiding losses and increasing assets on its balance sheet, Parmalat was able to continue to borrow enough money from investors and creditors to conceal and perpetuate the massive fraud.