OUR LADY OF FATIMA UNIVERSITY – VALENZUELA By: Jeffrey Tillo, CPA

APPLIED AUDITING – AUDIT OF CASH

1|Page Comprehensive Theories and Problems
ESSAY: PROBLEM CASH – 2
1. What are the internal controls for cash and cash equivalents? Explain Your audit of the Cash account of Andal Corporation reveals the following
briefly. information:
2. What are the audit procedures for cash and cash equivalents? Explain (1) Savings account of P1, 500, 000 and commercial checking account of
briefly. P800, 000 with Metropolitan Bank and Trust Company. Balances were
3. Give examples of audit evidences for cash and cash equivalents. Illustrate. taken from Andal’s general ledger.
4. Describe the following: Cash on hand, Cash in Bank, Cash Equivalents, (2) Three certificates of deposit with Metro Bank, each totaling P1, 000, 000,
Time Deposit, Manager’s Check, Money Market Instrument. with maturity dates of 90 days and less.
5. Describe the following: Bank Reconciliation, Proof of Cash, Undeposited (3) Money market placements with Axa Group of Companies, not intended
Collections, Outstanding Checks, Undelivered Checks, Stale Checks, to be terminated until 2015, P3,000, 000 face amount. Last value date
Balance per Books, Balance per Bank, Debit Memo, Credit Memo. was December 29, 2015; on which date, cumulative income earned on the
instrument is P200, 000.
PROBLEM CASH – 1 (4) Checking account with Allied Bank for payroll fund, P1, 200, 000 and
Reid Company is preparing its 2015 financial statements; the accounting period another checking account for tax fund, P500, 000.
ends December 31. The following items, related to cash, are under consideration. (5) A check for P35, 000 for salaries of an employee on leave was recorded
You have been asked to indicate how each item should be reported in the as disbursed on December 15; the employee has not claimed the check as
statement of financial position. of December 31.
a. A P90, 000 check received from a customer dated February 1, 2015 is on (6) Savings account with Allied Bank, P900, 000 as equipment acquisition
hand. fund, P480, 000 of which was earmarked for an equipment to be
b. A customer’s check for P100,000 was included in the December 20 delivered in March 2016. You were able to verify that this amount was
deposit. It was returned by the bank stamped “DAIF”. NO entry had yet actually disbursed in March 2016.
been made by Reid to reflect the return. (7) Petty cash fund, with impressed balance of P20, 000. Your count of the
c. Reid placed a P200, 000 unit investment trust fund in the portfolio of fund on January 4, 2016 revealed the following fund composition: Bills and
balanced fund with the bank in November. As of December 31, the fund coins, P12, 000; paid petty cash vouchers, all dated December 2015, P6,
has a fair value of P203,400. The chief accountant proposes to report the 800; IOUs from employees, with no supporting petty cash vouchers, P1,
P200, 000 as “Cash in Bank”. 200; and a check drawn against MetroBank checking account in the
d. Reid has a P20, 000 petty cash fund. As of December 31, the fund cashier amount of P5, 300 covering Meralco bill for the period November 29 to
reported expense vouchers covering various expenses in the amount of December 30, 2015.
P16, 700 and cash of P3,200. (8) Checks from customers in settlement of account, both on sales invoices for
e. A cashier’s check of P20, 000 payable to Reid Company is in the cash the month of December 2015, totaling P85, 000. The checks were verified
drawer, it is dated December 29. to have been recorded in the December cash receipts journal, although
f. Three checks, dated December 31, 2015, totaling P465, 000, payable to one check for P25, 000 was dated January 8, 2016. All the checks
vendors who have sold merchandise to Reid on account were not mailed provided to be good when subsequently deposited.
by December 31, 2015. They have not been entered as payments in the
check register and ledger. REQUIRED:
g. Prior to December 30, Reid left a note that matures December 31, 2015, (a) Prepare all the necessary audit adjusting entries as a result of the
with its bank for collection. The note is for P200, 000 and bears interest foregoing.
at 9%, having been outstanding for three months. As yet, Reid has not (b) Determine the amount that will be reported as “Cash and Cash
heard from the bank about collection but is confident of a favorable Equivalents” on the December 31, 2015 statement of financial position.
outcome because of the high credit rating of the maker of the note. The
company plans to include the P200, 000 plus interest in its cash balance.
OUR LADY OF FATIMA UNIVERSITY – VALENZUELA By: Jeffrey Tillo, CPA
APPLIED AUDITING – AUDIT OF CASH
2|Page Comprehensive Theories and Problems
PROBLEM CASH – 3
The following information has been extracted from the accounting records of the What is the correct amount of cash and cash equivalents that Pasagui Company
PASAGUI COMPANY at December 31, 2016: should report on its December 31, 2016, statement of financial position?

a. Cash on hand (see note below) P 230,000 PROBLEM CASH – 4

b. Impukan Bank savings account (the required The following facts apply to KOCHE COMPANY during 2016:
minimum Monthly Average Daily Balance 1. Savings account of P900,000 and a checking account balance of P1,200,000
(MDAB) is P10,000 9,500 are held at Valenzuela Bank.
c. 364-day Treasury bills purchased March 1, 2016 400,000 2. Money market placement with maturity of 3 months, P7,500,000.
d. Petty cash fund (see note below) 20,000 3. Currency and coins on hand amounted to P11,550.
e. Tipif Bank current account (see note below) 160,000 4. Travel advances of P270,000 for the first quarter of next year (employee
f. Time deposit placements: reimbursement will be through salary deduction).
Date Term 5. KOCHE Company has purchased P3,150,000 of commercial paper of
Dec. 15, 2016 30 days 30,000 Abesamis Corp. which is due in 60 days.
Oct. 31, 2106 90 days 40,000 6. A separate cash fund amounting to P2,250,000 is restricted for the retirement
Nov. 30, 2016 180 days 25,000 of long-term debt.
g. Employee travel advances 7,000 7. Petty cash fund of P1,500.
h. Cash in bomd sinking fund 500,000 8. An IOU from an employee of KOCHE Company in the amount of P2,000.
i. Customer's note receivable 45,000 9. Two certificates of deposit, each totaling P500,000. These CDs have a
j. Postage stamps 2,400 maturity of 120 days.
10. KOCHE Company has received a check from a customer in the amount of
The following are included in cash on hand: P187,500 dated January 15, 2017.
• A customer check for P43,000 returned by the bank on December 28, 2016. It 11. On January 1, 2016, KOCHE Company purchased marketable equity securities
was redeposited and cleared the bank on January 2, 2017. to be held as "trading" for P3,000,000. On December 31, 2016, its market value is
• A customer check for P75,000 dated January 3, 2017, received December 27, P4,300,000.
2016.
• PHL Post money orders received from customers, P30,000. What amount should be reported as cash and cash equivalents on December 31,
2016?
The petty cash fund consists of the following:
Currency and coins P 13,500 PROBLEM CASH – 5
IOUs from officers and employees 3,000 You were able to gather the following from the December 31, 201 trial balance of
Unreplenished petty cash disbursements 1,500 Armanie Corporation in connection with your audit of the company:
Currency in envelope with the notation: Cash on hand P500,000
"We were Bang Quay's coworkers. Words may Petty cash fund 10,000
not be adequate to express how sorry we feel. BPI current account 1,000,000
Please accept our heartfelt sympathies on the Security Bank current account No. 01 1,080,000
loss of your loved one." 1,500 Security Bank current account No. 02 (80,000)
P20,000 PNB savings account 1,200,000
PNB time deposit 500,000
The following information pertains to Tipid Bank current account:
• A check for P13,000 was dated and recorded on December 29, 2016, but was Cash on hand includes the following items:
delivered to payee on January 5, 2017. a. Customer’s check for P40,000 returned by bank on December 26, 2016
• A check for P5,000 dated January 10, 2017, payable to a supplier was recorded due to insufficient fund but subsequently redeposited and cleared by the
and released to payee on December 19, 2016. Tipid Bank requires current account bank on January 8, 2017.
depositors to maintain a monthly average daily balance of P50,000.
OUR LADY OF FATIMA UNIVERSITY – VALENZUELA By: Jeffrey Tillo, CPA
APPLIED AUDITING – AUDIT OF CASH
3|Page Comprehensive Theories and Problems
b. Customer’s check for P20,000 dated January 2, 2017, received on A check drawn by a supplier dated December 28, 2016,
December 29, 2016. for goods returned by the company 60,000
c. Postal money orders received from customers, P30,000. A check dated May 31, 2016, drawn by the company
against the Bank of Valenzuela in payment of customs duties.
The petty cash fund consisted of the following items as of December 31, 2016: Since the importation did not materialize, the check was
Currency and coins P2,000 returned by the customs broker. This check was an
Employees’ vales 1,600 outstanding check in the reconciliation of the Bank of Valenzuela 410,000
Currency in an envelope marked “collections for Petty cash fund of which P10,000 is in currency; P7,200 in
charity” with names attached 1,200 form of employees' IOUs; and P2,800 is supported by
Unreplenished petty cash vouchers 1,300 approved petty cash vouchers for expenses all dated
Check drawn by Armanie Corporation, payable to prior to closing of the books on December 31,2016 20,000
the petty cashier 4,000 Overdraft with the Bank of Valenzuela secured by a
chattel mortgage on the inventories 300,000
Included among the checks drawn by Armanie Corporation against the BPI
current account and recorded in December 2016 are the following: What is the amount of cash to be reported on the December 31, 2016, statement of
a. Check written and dated December 29, 2016 and delivered to payee on financial position of ALIPONGA Company?
January 2, 2017, P80,000.
PROBLEM CASH – 7
b. Check written on December 27, 2016, dated January 2, 2017, delivered to The accountant for the Aranzamendez Company assembled the following data:
payee on December 29, 2016, P40,000. June 30 July 31
Cash account balance P 15,822 P 39,745
The credit balance in the Security Bank current account No. 2 represents checks Bank statement balance 107,082 137,817
drawn in excess of the deposit balance. These checks were still outstanding at Deposits in transit 8,201 12,880
December 31, 2016. Outstanding checks 27,718 30,112
The savings account deposit in PNB has been set aside by the board of directors for Bank service charge 72 60
acquisition of new equipment. This account is expected to be disbursed in the next Customer’s check deposited July 10, returned by
3 months after the end of the reporting period. bank on July 16 marked NSF, and redeposited
immediately: no entry made on books for return 8,250
Based on the above and the result of your audit, determine the adjusted balances or redeposit
of following: Collection by bank of company’s notes 71,815 80,900
1. Cash on hand receivable
2. Petty cash fund The bank statements and the company’s cash records show these totals:
3. BPI current account Disbursements in July per bank statement P218,373
4. Cash and cash equivalents Cash receipts in July per Aranzamendez’s books 236,452

PROBLEM CASH – 6 Based on the application of the necessary audit procedures and appreciation of
The Cash account of the ALIPONGA CORPORATION as of December 31, 2016, was the above data, you are to provide the answers to the following:
composed of the following: 1. How much is the adjusted cash balance as of June 30?
2. How much is the adjusted bank receipts for July?
On deposit in current account with the Bank of PI P 900,000 3. How much is the adjusted book disbursements for July?
Cash collection not yet deposited to the bank 350,000 4. How much is the adjusted cash balance as of July 31?
A customer's check returned by the bank for insufficient fund 150,000 5. How much is the cash shortage as of July 31?
A check drawn by the Vice-President of the company
dated January 15, 2017 70,000
OUR LADY OF FATIMA UNIVERSITY – VALENZUELA By: Jeffrey Tillo, CPA
APPLIED AUDITING – AUDIT OF CASH
4|Page Comprehensive Theories and Problems
PROBLEM CASH – 8 i. The outstanding checks on December 31, 2017, were:
In the audit of Barroa Company’s cash account, you obtained the following Check No. Amount Check No. Amount
information: 1767 P5,000 2910 P2,300
The company’s bookkeeper prepared the following bank reconciliation as of 2856 1,300 2925 4,100
November 30, 2017:
Bank balance - November 30, 2017 P90,800 Based on the above and the result of your audit, determine the following:
Undeposited collections 5,000 1. Unadjusted cash balance per books as of December 31, 2017
Bank service charges 100 2. Adjusted cash balance as of November 30, 2017
Bank collection of customer’s note (8,000) 3. Adjusted book receipts for December 2017
Outstanding checks: 4. Adjusted bank disbursement for December 2017
Number Amount 5. Adjusted cash balance as of December 31, 2017
1159 P3,000
1767 5,000 PROBLEM CASH – 9
1915 2,000 (10,000) The following information is made available to you:
Book balance - November 30, 2017 P77,900 January February
2016 2016
Additional data are given as follows: Outstanding checks, end of the month P65,000 P43,000
a. Company recordings for December: Deposits in transit, end of the month 54,500 44,700
Total collections from customers P165,000 Bank credit memo for note collected 123,500 98,800
Total checks drawn 98,000 Bank service charges 3,250 4,650
DAIF check returned by bank (recorded by the
b. Bank statement totals for December: depositor in the month following the month when
Charges P123,800 checks were returned) 25,000 19,000
Credits 169,000 Cash per general ledger, end of month (92,250) 82,800
Cash per bank statement, end of month 13,500 156,250
c. Check no. 1159 dated November 25, 2017, was entered as P3,000 in
Total receipts per books 837,000 805,350
payment of a voucher for P30,000. Upon examination of the checks
returned by the bank, the actual amount of the check was P30,000. Total charges by bank 598,000 647,700
1. What is the adjusted cash balance as of February 28, 2016?
d. Check no. 2113 dated December 20, 2017 was issued to replace a 2. What is the adjusted amount of cash receipts during February?
mutilated check (no.1767), which was returned by the payee. Both checks 3. What is the adjusted amount of total disbursements during February?
were recorded in the amount drawn, P5,000, but no entry was made to 4. What is the adjusted cash balance as of January 31, 2016?
cancel check no. 1767.
PROBLEM CASH – 10
e. The December bank statement included a check drawn by Sipag The following information was revealed in trying to reconcile the bank statement
Company for P1,500. balance as of June 30 with the client’s records as of the same date:
a. Total credits per June bank statement were P310,000.
f. Undeposited collections on December 31, 2017 - P8,000. b. Among the bank credits in May was a customer’s note collected by the
bank for the account of the company which the company recognized in
g. The service charge for December was P150 which was charged by the June. Proceeds were P30,300.
bank to another client. c. Client books for June showed receipts of P420,000.
d. Deposits in transit on May 31 were P15,000.
h. The bank collected a note receivable of P7,000 on December 28, 2017, e. The bank credited the client’s account in June for P50,000 representing
but the collection was not received on time to be recorded by Barroa. loan approved and granted by the bank. Your client has not recorded this
yet.
OUR LADY OF FATIMA UNIVERSITY – VALENZUELA By: Jeffrey Tillo, CPA
APPLIED AUDITING – AUDIT OF CASH
5|Page Comprehensive Theories and Problems
f. A deposit of P4,300 was recorded by your client as P3,400 in June. The
bank recorded the deposit at its correct amount. 3. Which of the following cash transfers results in misstatement of cash at
1. How much were the deposits in transit as of June 30? December 31, 2015?
Bank Transfer Schedule
PROBLEM CASH - 11 Disbursement Date Receipt Date
The Bas Company had a weak internal control structure over its cash transactions. Per Books Per Bank Per Books Per Bank
Facts about its cash position at November 30, 2015 were as follows: A. 12/31/2015 01/05/2016 12/31/2015 01/04/2016
The cash books showed a balance of P1,890,162, which included undeposited B. 01/04/2016 01/11/2016 01/04/2016 01/04/2016
receipts. A credit of P10,000 on the banks records did not appear on the books of C. 12/31/2015 01/04/2016 12/31/2015 12/31/2015
the company. The balance per bank statement was P1,555,000. Outstanding D. 01/04/2016 01/05/2016 12/31/2015 01/04/2016
checks were No. 62 for P11,625, No. 183 for P15,000, No. 284 for P25,325, No. 8621
for P19,071, No. 8622 for P20,680, and No. 8632 for P14,528. 4. Which of the following procedures would an auditor most likely perform
The cashier stole all undeposited receipts in excess of P379,441 and prepared the in auditing the statement of cash flows?
following reconciliation: A. Reconcile the amounts included in the statement of cash flows to
Balance per books, November 30, the other financial statements’ amounts.
2015 P1,890,162 B. Vouch a sample of cash receipts and disbursements for the last
Add: outstanding checks few days of the current year.
8621 P19,071 C. Reconcile the cut- off bank statement to the proof of cash to
8622 20,680 verify the accuracy of the year-end cash balance.
8623 14,528 44,279 D. Confirm the amounts included in the statement of cash flows
P1,934,441 with the entity’s financial statements.
Less: undeposited receipts 379,441
Balance per bank, November 30, 5. Which of the following misstatements is most likely to be uncovered
2015 P1,555,000 during an audit of a client’s bank reconciliation?
Deduct: unrecorded credit 10,000 A. Duplicate payment of a vendor’s invoice.
True cash, November 30, 2015 P1,545,000 B. Failure to record collection of a customer’s note by the bank on the
1. How much did the cashier steal? client’s behalf.
2. What is the correct amount of cash to be shown on the statement of C. Billing a customer at a price different from that indicated by the
financial position on November 30, 2015? company policy.
3. Taking only the information given, name two specific features of internal D. Payment of an overtime pay of an employee in excess of what is
control that were apparently missing. legally required.

THEORIES 6. Which of the following cycles does not affect cash in bank?
1. The practice which postpone entries for the collection of receivables to A. Financing cycle.
conceal an existing cash shortage is referred to as B. Inventory and warehousing cycle.
A. Interbank transfer. C. Lapping. C. Revenue and collection cycle.
B. Kiting. D. Shorting. D. Investing and disbursement cycle.

2. The practice of intentionally transferring funds from one bank account to 7. Which of the following is a standard internal control over cash
another without recording withdrawal from the originating bank but disbursements?
recording the deposit in the second bank to temporarily conceal a cash A. Making payments out of cash collected during the day.
shortage is called B. Checks should be signed by the controller and another employee of the
A. Interbank transfer. C. Lapping. company.
B. Kiting. D. Shorting.
OUR LADY OF FATIMA UNIVERSITY – VALENZUELA By: Jeffrey Tillo, CPA
APPLIED AUDITING – AUDIT OF CASH
6|Page Comprehensive Theories and Problems
C. Checks should be sequentially numbered and the numerical sequence B. Confirmation of cash balance with financial institutions.
of the check should be accounted for by the person preparing the C. Comparing postings of cash receipts with the details of cash deposits.
bank reconciliation. D. Preparing month-end bank reconciliations.
D. Checks should be issued directly to the payee by the person signing the
check. 14. Properly designed internal control will permit the same employee to
A. Receive and deposit checks, and also approve write- offs of customer
8. Which of the following audit procedures would most likely to detect accounts.
kiting? B. Approve vouchers for payment, and also receive and deposit cash.
A. Review composition of authenticated deposit slips. C. Reconcile the bank statements, and also receive and deposit cash.
B. Review subsequent statements and cancelled checks returned by the D. Sign checks, and also cancel supporting documents.
bank.
C. Prepare a bank transfer schedule. 15. Which objective is most directly associated with the control procedure of
D. Prepare year- end bank reconciliations. separating cash handling and record keeping?
A. To verify cash receipts recorded during the period are reasonable.
9. In most situations, the petty cash fund is reimbursed just prior to year- end B. To verify cash receipts are correctly classified.
to avoid C. To verify that recorded cash receipts are from legitimate company
A. The understatement of cash and overstatement of expenses. transactions.
B. The understatement of cash and understatement of expenses. D. To verify that cash receipts are appropriately recorded.
C. The overstatement of cash and understatement of expenses.
D. The overstatement of cash and overstatement of expenses. 16. Rank the following audit evidences in the order of reliability, starting with
the most reliable to the least reliable.
10. The general cash account is considered significant in almost all audits I. Cash count conducted by the audit staff.
A. When the ending balance is material. II. Bank confirmation report.
B. When the beginning balance is material.
III. Bank reconciliation prepared by the company’s internal audit
C. When either the beginning balance or the ending balance is material.
staff.
D. Even when the ending balance is immaterial.
IV. Verbal communication from the manager on the petty cash
11. Which of the following would most likely be detected by preparing a replenishment procedures.
proof of cash? A. I, II, III, IV C. III, II, IV, I
A. A collection of an account receivable previously written off. B. II, I, III, IV D. I, II, IV, III
B. An unrecorded bank deposit made at the end of the month.
C. A payment of an account payable previously paid by check. Determine if below procedures is: TEST OF DETAILS OF BALANCES or TEST OF
D. A misappropriation of cash receipts not recorded in the cash receipts TRANSACTIONS, and state the assertion of each procedure.
journal. (ASSERTIONS: Occurrence, Completeness, Authorization, Accuracy, Cutoff,
Classification, Existence, Valuation and Allocation)
12. Which of the following would most likely not be detected by preparing a 1. Vouch a sample of entries in the cash receipts journal to remittance
proof of cash? advices, daily deposit slips, and bank statement.
A. A check is issued but not recorded. 2. Vouch a sample of entries from the cash disbursements journal to
B. Unrecorded remittances by customers deposited directly to the bank. canceled checks, voucher packet, and bank statement.
C. An issuance of check for payment of an account payable previously 3. Trace a sample of remittance advices to cash receipts journal and, if
paid by check. necessary, to deposit slips.
D. An unrecorded bank charge for customers’ DAIF checks. 4. Trace a sample of canceled checks to the cash disbursements journal.
5. For a sample of days, examine the signature on the deposit slip and the
13. Which of the following audit procedures would most likely detect lapping? check endorsements for proper authorization.
A. Conducting a cash count.
OUR LADY OF FATIMA UNIVERSITY – VALENZUELA By: Jeffrey Tillo, CPA
APPLIED AUDITING – AUDIT OF CASH
7|Page Comprehensive Theories and Problems
6. Examine a sample of canceled checks for authorized signature and proper Shortly thereafter, Calisto Tanzi resigned as chairman and CEO. Following
endorsement. his resignation, allegations arose that Parmalat had forged a Bank of America
7. For a sample of daily deposits, foot the remittance advices and entries on confirmation for $4.9 billion and sent it to the company’s auditors to
the deposit slip and agree to the cash receipts journal and bank corroborate the existence of cash. However, the cash did not exist. The forged
statement. confirmation was fuzzy and of poor quality because it is alleged that
8. For a sample of voucher packets, agree amounts in purchase order, Parmalat officials ran the fake confirmation through the fax machine several
receiving report, invoice, canceled check, and disbursement journal. times as part of its efforts to hide the fact that the document was a forgery.
9. For a sample of weeks, foot the cash receipts journal and agree posting to Before the end of 2003, Parmalat had filed for bankruptcy and
the general ledger. investigations began uncovering what appeared to be a large and intricate
10. For a sample of weeks, foot the cash disbursements journal and agree accounting fraud, which in the end was hidden by the company’s false cash
posting to the general ledger. deposits. Investors, creditors, and legal authorities immediately questioned the
11. Compare the dates for recording a sample of cash receipts transactions in work performed by the auditors.
the cash receipts journal with the dates the cash was deposited in the The Parmalat case is a high-profile and painful example of a failure in
bank (note any significant delays). the audit of cash and how important it is to correctly verify cash balances. The
12. Compare the dates for a sample of checks with the dates the checks Parmalat case demonstrates the importance of auditing standards regarding
cleared the bank (note any significant delays). evidence and proper auditing procedures.
13. Observe cash on hand for the last day of the year, and trace deposits to A massive accounting fraud involving fictitious cash deposits at Satyam
cash receipts journal and cutoff bank statement. Computer Systems, New Delhi, India, was concealed because the auditors did
14. Record the last check issued on the last day of the year, and trace to cash not properly control the bank confirmation process. For noncompliance with
disbursements journal. PCAOB auditing standards, the Indian affiliate to PricewaterhouseCoopers
15. Examine a sample of remittance advices for proper account classification. International Limited was sanctioned and fined $1.5 million by the PCAOB and
16. Examine a sample of canceled checks for proper account classification. $6.0 million by the SEC.
17. Confirm bank account balance with financial institution.
18. Test bank reconciliation for each account.
19. If control risk is high or if fraud is suspected, perform extended bank
reconciliation procedures, perform a proof of cash, and test for kiting.

AUDIT CASE FOR CASH

Parmalat’s $4.9 Billion Fictitious Bank Confirmation
After taking over his father’s food distribution business, Calisto Tanzi
founded a small milk pasteurization company near Parma, Italy. Later
named Parmalat Finanziaria S.p.A., the company gained notoriety by
acquiring a Swedish pasteurization technology called ultra-high temperature
(UHT). This process created the long-life milk product for which the company
is best known.
Parmalat expanded its operations through acquisitions and, by the end of
the 1990s, was the fourth largest food company in Europe, employing over
36,000 people in 30 countries; however, company expansion through
acquisitions meant that Parmalat assumed a heavy debt burden.
Although Parmalat had a strong credit rating entering the 2000s, the
business community began to question Parmalat’s decision not to pay down
acquisition debt with the large amount of cash it had on hand. Suspicions
increased when Parmalat was unable to make a £108 million bond payment.
Parmalat officials claimed that the delay was caused by a temporary liquidity
problem.