Parmalat is an Italian food service company. Parmalats audits used Deloitte auditors in at least 30 countries, including Italy, the United States, Canada, Mexico, Brazil, and the Netherlands. The auditors in the other countries frequently let the Italian auditors make the final decisions related to the audit since they signed the audit report. Investors around the world relied on the audit report issued by Deloitte & Touche on the Parmalat financial statements. Parmalat filed for bankruptcy in December 2003. The financial statements of the company had hidden a fraud that ran for ten years with 14 billion removed from the company during that time, some into the hands of top executives, and some to finance an overly ambitious expansion policy in South America. The fraud was compared to a Ponzi scheme where Parmalat managers used billions of dollars borrowed from investors around the world to cover up losses from their expansion in South America. When the company covered up the losses in the company, they were able to continue to borrow money. When they were no longer able to borrow money, the company collapsed. At the time of the collapse, Parmalats assets were overstated by 4 billion and its debt was understated by at least 7.9 billion.

Required:

Describe the technical proficiency and ethical sensibility required of the auditors in this case. Did the auditor meet these requirements?

Identify specific sections of the auditing standards and the codes of conduct that apply in this situation.

Various offices of Deloitte & Touche are attempting to limit their liability, putting the responsibility for the failed audit on Deloitte & Touche Italy. Should auditors be able to limit their liability on the work done on an audit if they were not the primary auditor?